2014 (12) TMI 91

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....der section 40(a) NIL Note: Advertisement expenses of Rs. 1,25,47,870/- is paid to M/s. JV Overseas Trading Limited, British Virgin Islands for advertisement of Teas on Kazakhstan Television. No tax is considered as deductible and payable thereon as the advertisement has been effected outside India by M/s. JV Overseas Trading Limited on our behalf. Commission of Rs. 1,00,82,080/- is paid to M/s. JV Overseas Trading Limited, British Virgin Island. No tax is considered as deductible and payable thereon as M/s. Overseas Trading Limited has acted as selling agents outside India and have no business in India. Reliance is placed on Supreme Court's decision in the case of C.I.T. V/S. TOSHOKU LTD. 124-itr-525." 4. During the course of scrutiny proceedings the Authorised Representative of the assessee represented from time to time and furnished the details as called for. During the course of examination of books of account the AO noticed that during the previous year relevant to AY 2003- 04 onwards the assessee started exporting other traditional and nontraditional items also. He also observed that the comparative GP ratio shows a decline in the overall performance of the assessee;....

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....sclose fully and truly all material facts which are necessary for the assessment. It was also contended that reopening of assessment under section 147 is void abinitio since the original assessment was framed duly considering the merits of all the relevant facts and issues and on mere change of opinion the AO is not entitled to reopen the assessment even within four years period. 9. During the course of appellate proceedings the assessee contended before the CIT(A) that the expression "reason to believe" does not mean purely subjective satisfaction on the part of the AO. In other words, reopening is not valid on mere change of opinion even under the amended section 147. If all the material particulars are available on record and they are in the knowledge of the AO at the time of making the original assessment and the AO does not make any addition on account thereof then it has to be presumed that the AO has reached a conclusion that no addition is required to be made and the new incumbent AO cannot substitute his view on the matter by issuing a notice under section 148 of the Act. It was also stated that all the details related to these payments have been disclosed vide Annexure....

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....ss connection - with its foreign branch - while completing the assessment and thus the AO is deemed to have taken into consideration the factum of payment and the reasons thereof and chose not to invoke provisions of section 40(a) of the Act in which event the new incumbent AO cannot arbitrarily invoke provisions of section 148 of the Act on a mere change of opinion, in the absence of any fresh material on record. In this regard he relied upon the decision in the case of Praful Chunilal Patel 123 Taxman 433 wherein the Full Bench of the Hon'ble Delhi High Court held that initiation of proceedings for reassessment only upon mere change of opinion is bad in law, even under the amended provisions of section 147. In this regard the court highlighted that what cannot be done directly cannot be done indirectly, i.e. the AO has no jurisdiction to review the order and thus the expression "reason to believe", read in that perspective, would not give arbitrary powers to reopen the past assessment on mere change of opinion. In para 12 and 13 of its order the Full Bench of the Hon'ble Delhi Court referred to the Division Bench judgement of the Hon'ble Gujarat High Court in the case....

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....on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the grab of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an inbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." 13. He also emphasised that omission of the words "reason to believe" in section 147 and substitution by "opinion" was objected and various representations were made on the ground that it would give arbitrary powers to the AO to reopen past assessments on mere change of opinion and to alleviate these fears the words "reason to believe" are reintroduced in section 147 in th....

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.... 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. 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. As rightly observed by the Hon'ble Delhi High Court (supra) - which is affirmed by the Hon'ble Apex Court - when a regular assessment is made in terms of section 143(3) of the Act a presumption can be raised that such an order has been passed by application of mind since judicial and official acts are deemed to have been regularly performed. In such an event of the matter, merely because a new incumbent AO has a different view, the Revenue cannot take benefit of its own wrong and arbitrarily assume that there is escapement of income, without bringing on record any fresh tangible material to show that there is justification for forming an opinion that assessee's income escaped assessment. In other words, mere subjective sa....