TaxTMI 
TaxTMI 
2020 (9) TMI 459
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....reassessment proceeding was initiated on mere change of opinion and without application of mind. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have disposed off the appeal on merit as it is a case where Revenue Audit objection has been accepted by the Department and the fact that the Assessing Officer reopened the case after being satisfied with the reason recorded by him. Thus, quashing of reassessment order by the Ld. CIT(A) is against the provisions of CBDT Circular No.03 of 2018 dated 11.07.2018[para-10(c)]." 3. Facts in brief are that the assessee filed its original return of income on 29.9.2011 showing total income at Rs. 199,01,13,792/- and revised the return of income on 31.3.2012 showing total income at Rs. 199,01,13,792/-. The Assessing Officer completed assessment u/s.143(3) of the Act on 14.3.2014 determining the total income at Rs. 408,97,86,830/-. After giving appeal effect to the order of the ld CIT(A) dated 7.11.2014, the revised income stands at Rs. 209,26,24,384/-. 4. Later on, the Assessing Officer from the profit and loss account, observed that the assessee company had made expenses of Rs. 3.59 crore i....
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....rises out of change of opinion on the part of AO. b. The Hon'ble ITAT Cuttack in the case of the Appellant for AY 2007-08 & 2008-09 in ITA 47, 48, 73, 74/CTK/2014 under similar circumstances, has quashed the re-assessment order for AY 2007-08 & 2008-09. c. Even on merits, the disallowance of the nature made by the AO in the re-assessment proceedings is not sustainable since the impugned payments have been made to foreign companies and have no element of income taxable in India to attract the provisions of Section 195(1). Further, disallowance under Section 40(a)(i) of similar payments by way of export commission, advisory services, VMI services charges has been deleted by ITAT, Cuttack the case of the Appellant for AY 2013-14, 2012-13 and 2007-08 in ITA 412, 342, 405, 312, 411 of 2016 and ITA 220, 230 of 2017. 6. Ld CIT DR assailing the first appellate order submitted that the ld CIT(A) is not justified in quashing the reassessment order. He submitted that in this case, there was a Revenue Audit objection which was also accepted by the Department, it can be seen that the AO while recording the reasons for re-opening u/s.147 of the Act, has independently applied....
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....t arise. For this proposition, he placed reliance on the decision of Hon'ble Mumbai High Court in the case of Ipca Labs Ltd. vs. DCIT (251 ITR 420). He submitted that when an issue is not examined by the Assessing Officer or he does not apply his mind then it is a case of no opinion or belief. The question of change of opinion shall not arise in such a case. Reliance is placed on the decision of Hon'ble Mumbai High court in the case of Yuvraj vs. Union (315 ITR 84). Accordingly, ld CIT DR requested that the decision of CIT(A) to quash the reassessment proceedings be reversed and the case be adjudicated on merit. 10. Replying to above, ld A.R. of the assessee supported the order of the ld CIT(A). Ld A.R. submitted that during the course of original assessment proceedings, the Assessing Officer vide notice dated 20.2.2014 required the assessee to explain as to why disallowance under section 40(a)(i) of the Act should not be made in respect of expenses incurred in foreign currency and referred to in schedule Ó; to the profit and loss account and notice in particular referred to 'other expenses' amounting to Rs..3.59 crores, which has been mentioned inadvertently inst....
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.... assessment it is clear that the AO has reopened the assessment on the ground that the foreign currency was incurred to the tune of Rs. 8.08 crores without making TDS u/s.195 of the Act and no application under section 192(2), 192(3) or 197 of the Act was made by the assessee for nondeduction of tax u/s.195 of the Act. On perusal of the relevant materials placed on record, we find that the during the original assessment proceedings, the AO had considered the issue of non-deduction of tax u/s.195 of the Act on payment made to foreign parties and had not made any disallowance. After that no new fact has come to the knowledge of the AO after the original assessment was framed under Section 143(3) of the Act vide Order dated 14.03.2014. The AO has merely re-examined the profit and loss account of the assessee to initiate the reassessment proceedings. In any case, the CIT(A) has in the impugned order at page 8 has recorded a finding of fact that the very same payment has been discussed elaborately in the original assessment order dated 14.03.2014, passed under Section 143(3) of the Act. 14. The ld first appellate authority allowed the appeal of the assessee on both the counts i.e.....
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.... any application for non-deduction or lesser deduction of tax U/s 195(2). There was no evidence forthcoming from the record that any certificate u/s. 192(2)1 192(3)/197 was Issued by the A.O. in r/o payment to ^nonresident foreign Company. The assessee had failed to deduct TDS and also failed to obtain any no-deduction certificate from the concerned ITO (TDS). Therefore, the payment of Rs. 8.08 crore to foreign company was required to be added to the total income of the assessee u/s.40a(i) of the 1. T. Act, 1961. In view of the above, I have reason to believe that income chargeable to tax has escaped assessment as far as there is underassessment of income to the above extent (as discussed in para 1, 2 & 3 above), within the meaning of section 147 of the 1.7: Act, 1961." 2.2 It is clear from the reasons that the AO was of the view that tax was required to be deducted u/s. 195(1) by the assessee from the payments made by it of Rs. 8.08 crores (Rs. 8,07,91,391/-) is the actual amount) in foreign currency to foreign companies and categorized under the head "others" in schedule 'O' to the P&L account. Since the assessee had failed to deduct tax at source on the....
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....t give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the assessing officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse." 2.3 It is also well settled that the AO has no power to review the assessment made by him by taking recourse to the provisions of section 147. The AO has power to reopen an assessment provided there is "tangible material" available with him to conclude that there is escapement of income from assessment. The foundation of section 147 is "reason to believe", and not "reason to suspect", that income chargeable to tax has escaped assessment. In the case of CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC) the Hon'ble Supreme Court has held that the concept of change of opinion must be treated as an inbuilt test to check the abuse of power by the AO and that even after 1.4.1989, the date from which the amended provisions of section 147 came into force, the AO has power to reopen an assessment, provided there is "tangible material" to come to the conclusion that there is escap....
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....xpressed by the Hon'ble jurisdictional ITAT in several other cases such as M/s. Shree Builders (order dt.23.11.2017 in ITA 120/CTK/201;and Smt. Pinky Agarwal (order dt.5.1.2017 in ITA No.390/CTK/2016. 2.5 It is also seen from the records that in the case of the assessee company itself, the Hon'ble ITAT, Cuttack Bench, Cuttack, on similar facts, vide their order dt.25.10.2017, has quashed the reassessment proceeding initiated for the AYs 2007-08 & 2008-09 holding that no reassessment can be legally made on mere change of opinion. The relevant portion of the order of ITAT is reproduced below for proper appreciation of the matter: "17. A perusal of the recorded reasons shows that nowhere it records any fresh tangible information, which came to the notice of the Assessing Officer after completion of assessment under section 143(3) on 30.12.2009 for the assessment year 2007-08 and on 29.12.2010 for the assessment year 2008-09 and before recording of aforesaid reasons. Rather, the recorded reasons show that the reasons have been recorded based on very same materials which were already available before the Assessing Office prior to completion of assessment u/s. 1....
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.... Officer at the time of making original assessment will empower the Assessing Officer to reopen the assessment even in absence of fresh tangible material. In our considered view, it is contrary to the above stated decision of Hon'ble Supreme Court in the case of Kelvinator of India Limited (supra)." That apart, the reasons recorded by the AO proceed on the erroneous assumption that that all payments to non-resident are subject to withholding taxes under section 195 of the Act and, therefore, income has escapement assessment for failure to withhold tax u/s 195(1) r/w 40(a)(i), which is in complete disregard of the decision of Supreme Court in the case of GE India Technology Centre (P) Ltd. v. CIT: 327 ITR 456, wherein it has been held by the apex Court that the provisions of section 195 of the Act are attracted only if the payments made to the non-resident recipient are chargeable to tax in India. Furthermore, in light of binding CBDT Instruction No. 02/2014 dated 26.02.2014, which states that the provisions of section 195(1) of the Act would apply only if the payments made to a non-resident are chargeable to tax in India. As such, it is submitted that the assessing off....
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....he assessee legally invalid and, therefore, the reassessment order is quashed." 15. The decision of the Hon'ble Supreme Court in the case of P V S Beedies Pvt Ltd (supra) relied by ld CIT DR is misplaced as in that case, the Revenue Audit Party had brought on record a fresh fact, which was not available with the AO at the time of original assessment proceedings. The relevant observations of the Court are as under: "The audit party has merely pointed out a fact which has been overlooked by the Income Tax Officer in the assessment. The fact that the recognition granted to this charitable trust had expired on 22-9-1992 was not noticed by the Income Tax Officer. This is not a case of information on a question of law. The dispute as to whether reopening is permissible after audit party expresses an opinion on a question of law is now being considered by a larger Bench of this Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law." 16. In the case of Kasturbhai Lalbhai (supra), the opinion of the....