2018 (1) TMI 778 - AT - Income Tax

ITAT upholds CIT(A) decision on assessment re-opening under Section 147, dismisses Revenue appeal

The ITAT upheld the CIT(A)'s decision to quash the re-opening of assessment under Section 147, stating it was a mere change of opinion without new ... Re-opening of assessment - reasons to believe - notice u/s 154 issued requiring the assessee to explain reasons for non deduction of tds - re-opening on the basis of audit objection - deduct tax either u/s 194C or u/s 194I - Held that:- Rectification of mistake apparent from the record cannot be equated with the power of reopening under section 147 and 148 which is conferred on the Assessing Officer to reopen the cases under assessments when the conditions mentioned in the said sections are satisfied. The object and purpose of the two provisions is separate and the preconditions and requirements are different. The words 'reasons to believe' when income chargeable to tax has escaped assessment has a different connotation and requirements and cannot be equated with the power under section 154 to rectify the mistakes apparent from the record. From the above facts, it is clear that the assessee duly disclosed all material facts before the A.O. during the assessment proceedings by furnishing all the details, producing books of accounts and the A.O. duly examined those details and books of accounts and had the TDS provision been applicable on such payments, he would not have disallowed a sum of ₹ 3,00,000/- out of machinery rent paid by the appellant. It is pertinent to mention here that no new material has come on record which goes to show that these payments are to be disallowed u/s 40(a). Also the contract under reference was machinery hire contract and not a contract for carrying out any work within the meaning of limb (a) of section 194C of the Act The issue regarding machinery rent has already been considered vide para no.2 of the original assessment order made 'u/s 143(3) in which an addition of ₹ 3,00,000/- has already been made, secondly, the appellant explained the same during the course of proceedings u/s 154. On these facts of the assessee's case, it cannot be held that the A.O. can entertain the 'reason to believe' for income chargeable to tax escaping assessment. A.O. rejected all the object ions raised by the assessee against initiation of re-assessment proceedings on the ground that the Assessing Officer has not examined the above expenses with regard to provision of tax deduction at source i.e. disallowance U/s 40(a)(ia) of the Income Tax Act, 1961. Hence, there is no change of opinion. Change of opinion comes to the rescue of the assessee only when Assessing Officer has taken one of the permissible views at the time of original proceeding. A wrong application of law can not be held as a permissible view and that can always be changed for appreciating law and in support of his findings. - Decided against revenue Issues Involved:1. Quashing of re-opening of assessment under Section 147.2. Applicability of provisions under Section 40(a)(ia) due to default in deduction of TDS on machinery rent and shuttering expenses.3. Jurisdiction to re-open assessment based on audit objections.4. Nature of contract concerning payment for machinery rent.Issue-wise Detailed Analysis:1. Quashing of Re-opening of Assessment Under Section 147:The Revenue's appeal challenged the CIT(A)'s decision to quash the re-opening of assessment under Section 147. The CIT(A) held that the re-opening was not justified as it was based on the same issues previously addressed and settled during the original assessment and subsequent proceedings under Section 154. The CIT(A) emphasized that no new material had surfaced to warrant re-opening and that it was merely a change of opinion.2. Applicability of Provisions Under Section 40(a)(ia) Due to Default in Deduction of TDS on Machinery Rent and Shuttering Expenses:The Revenue argued that the assessee failed to deduct TDS on machinery rent and shuttering expenses, leading to a disallowance under Section 40(a)(ia). The CIT(A) and ITAT found that the assessee had sufficiently demonstrated that the payments were for hiring machinery and purchasing materials, which did not fall under Section 194C as they were not work contracts but hire contracts. The payments were made for the rent of machinery and purchases of materials, which did not exceed the threshold for TDS under Section 194-I.3. Jurisdiction to Re-open Assessment Based on Audit Objections:The Revenue contended that the re-opening was justified based on audit objections. However, the CIT(A) and ITAT held that audit objections alone do not constitute valid grounds for re-opening assessments. The reasons to believe that income had escaped assessment must be based on new and tangible material, which was not the case here. The original assessment had already considered the issues, and no new information had come to light.4. Nature of Contract Concerning Payment for Machinery Rent:The CIT(A) and ITAT concluded that the nature of the contract for machinery rent was that of hiring machinery, not a work contract. The machinery was under the control and possession of the assessee, and the payments were made based on the duration of use, not the quantum of work done. This distinction meant that the provisions of Section 194C were not applicable, and thus, there was no default in TDS deduction.Conclusion:The ITAT upheld the CIT(A)'s decision to quash the re-opening of the assessment under Section 147, finding that it was based on a change of opinion and not on new material. The ITAT also agreed that the payments for machinery rent and shuttering expenses did not attract TDS under Section 194C, as they were not work contracts. The appeal of the Revenue was dismissed on both jurisdictional and merit grounds.