2020 (9) TMI 459 - AT - Income Tax

Tribunal Affirms Decision to Quash Reassessment Order, Emphasizes Need for Tangible Material in Tax Proceedings.

DCIT, Corporate Circle -1 (1), Bhubaneswar. Versus M/s. Indian Metals & Ferro Alloys Ltd.

DCIT, Corporate Circle -1 (1), Bhubaneswar. Versus M/s. Indian Metals & Ferro Alloys Ltd. - TMI Issues Involved:1. Validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.2. Whether the reassessment was based on a mere change of opinion.3. Justification of the disallowance under Section 40(a)(i) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961:The revenue contested the order of the CIT(A) which quashed the reassessment proceedings initiated under Section 147. The CIT(A) held that the reassessment proceedings were invalid as they were based on a mere change of opinion. The Assessing Officer (AO) had initially assessed the income under Section 143(3) without disallowing the expenses in question. The AO later reopened the assessment on the grounds that tax was not deducted at source under Section 195 for certain foreign currency expenses, which was previously examined and accepted during the original assessment. The Tribunal upheld the CIT(A)’s decision, stating that the reassessment was not based on any new tangible material but was merely a re-examination of the same facts already considered in the original assessment.2. Whether the reassessment was based on a mere change of opinion:The Tribunal noted that the AO had considered the issue of non-deduction of tax under Section 195 during the original assessment and had not made any disallowance after being satisfied with the assessee's explanation. The reassessment proceedings were initiated on the same facts without any new information coming to the AO's notice. Citing the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., the Tribunal emphasized that a mere change of opinion does not justify reopening an assessment. The reassessment was, therefore, invalid as it was based on a change of opinion rather than new tangible material.3. Justification of the disallowance under Section 40(a)(i) of the Income Tax Act, 1961:The CIT(A) also addressed the merits of the disallowance under Section 40(a)(i). It was observed that the payments in question were made to foreign companies and did not have any element of income taxable in India, thus not attracting the provisions of Section 195. The Tribunal supported this view, referring to previous decisions where similar disallowances were deleted. The Tribunal concluded that even on merits, the disallowance was not sustainable.Conclusion:The Tribunal dismissed the revenue's appeal, affirming the CIT(A)’s decision to quash the reassessment order. It was held that the reassessment proceedings were invalid as they were based on a mere change of opinion without any new tangible material. Additionally, the disallowance under Section 40(a)(i) was not justified as the payments made to foreign companies did not attract the provisions of Section 195. The Tribunal emphasized the necessity of tangible material for reopening assessments and the importance of not using reassessment as a tool for reviewing previously accepted positions.