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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION LODGING NO.2710 OF 2012
M/s. NDT Systems,
Through partners of the erstwhile firm
1 Sewalal D.Tiwari,
R.No.13, Hill view CHS Ltd.,
Sai kripa Complex, Kashi Mira,
Mira Road, Thane 401107.
2 Ashok Kumar Gupta,
C/o. Sewalal D.Tiwari,
R.No.13, Hill View CHS Ltd.,
Sai kripa Complex, Kashi Mira,
Mira Road, Thane 401107. ...Petitioners.
v.
1 The Income Tax Officer,
Ward 25(1)(4), C-10, 3rd floor,
Pratyaksh Kar Bhavan,
Bandra Kurla Complex,
Bandra(E), Mumbai-400 051.
2 Commissioner of Income Tax-25,
Pratyaksh Kar Bhavan,
Bandra Kurla Complex,
Bandra (E), Mumbai-400 051.
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3 The Union of India.
Through the Secretary,
Minisitry of Revenue,
North Block, New Delhi-110001. ..Respondents.
Ms. Aasifa Khan for the Petitioner.
Mr. Arvind Pinto fort the Respondent.
CORAM : J.P. DEVADHAR AND
M.S. SANKLECHA, JJ.
DATE : 4th December, 2012 JUDGMENT :( Per M.S.SANKLECHA, J.) This petition under Article 226 of the Constitution of India seeks to quash a notice dated 20/3/2012 issued under Section 148 of the Income Tax Act, 1961.("the Act"). The impugned notice seeks to reopen the assessment for the assessment year 2007-08 on the ground that the Assessing officer has reasons to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act.
2) At the request of the Advocates for the petitioner and the respondent the petition is taken up for final disposal at the stage of admission itself.
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3 Brief facts leading to this petition are as follows:
a) At all times relevant to this petition, the petitioner firm
was engaged in non destructive testing business which includes testing of the blasting contents of the plant and machinery along with building which are being installed by its clients. This activity of testing was mainly supervised and controlled by the guidelines issued by Bhabha Automatic Research Centre (BARC) as it involves the use of radio active material.
b) On 21/10/2007 the petitioner filed its return of income for assessment year 2007-08 declaring a total income of Rs.7.06 lacs. Thereafter, notice under Section 143(3) of the Act was issued to the petitioner by the Assessing officer. During the course of assessment proceedings the Assessing officer found that the labour charges and radiography charges which were debited as expenses by the petitioner had not suffered tax deduction at source. Consequently, the petitioner was called upon to explain why the radiography and labour charges paid by them and debited as expenses should not be disallowed under Section 40(a)(ia) of the Act while computing its profits.
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c) In response to the above query, the petitioner
submitted complete details of radiography and labour charges paid by it indicating the name and address of the recipients. The petitioner inter alia pointed out that the job of testing carried out by it, is mainly supervised by BARC, as it involves use of radio active material. The petitioner also pointed out that the persons engaged by them for radiography are generally skilled personnel while those for labour charges were generally unskilled personnel.
However, according to the petitioner no deduction of tax at source is required to be made as the payment made to them were in fact in the nature of wages and salaries. Therefore, the provisions of tax deduction at source under Section 194C of the Act would not apply and consequently no occasion to invoke Section 40(a)(ia) of the Act can arise. The Assessing officer after considering the petitioner's response in the assessment order did not accept the same and held that the tax deduction at source was required to be done by the petitioner in respect of radiography and labour charges paid under Section 194C of the Act. In the circumstances, the amount of Rs.4.08 lacs which was claimed towards the labour charges and radiography charges was disallowed under Section 40(a)(ia) of the Act and added to the total income of the petitioners. In the result, the assessment order dated 11/12/2009 ::: Downloaded on - 09/06/2013 19:27:40 ::: ASN 5/19 WP-2710.doc assessed the petitioner to a total income of Rs.12.05 lacs.
d) On 28/3/2012, the Assessing officer issued the impugned notice under Section 148 of the Act to the petitioner.
By the impugned notice the petitioner was informed by the Assessing officer that he proposes to reassess the petitioner for the assessment year 2007-08, as he has reason to believe that the income assessable to tax has escaped assessment. In response to the above the petitioner sought a copy of reasons recorded for issuing the impugned notice under Section 148 of the Act.
e) On 23/7/2012 the Assessing Officer communicated the reasons for reopening the assessment for assessment year 2007-08 to the petitioner as under:
"Reasons for Issue of Notice u/s.148 of the I.T. Act, 1961:
The Assessee firm filed its return of income for the A.Y. 2007-08 declaring total income at Rs.7,06,948/-. The assessee received testing charges of Rs.2.49 crores on which expenses on account of radiography and labour charges were claimed. The case was ::: Downloaded on - 09/06/2013 19:27:40 ::: ASN 6/19 WP-2710.doc selected for scrutiny and assessment was completed u/s.143(3) on 11.12.2009 assessing total income at Rs.12,05,020/- after disallowing contract payments made in excess of Rs.50,000/- during the year.
On verification, it is noticed that the payments towards RADIOGRAPHY CHARGES AND LABOUR CHARGES, are in the nature of contract payments and disallowed these expenses as per the provisions of Section 40(a) (ia) vide order dated 11.12.2000 and the items considered for dis-allowance are payments made in excess of Rs.50,000/- in the relevant financial year. These payments would actually fall under the head "Fees for Professional or Technical Services" and accordingly all the payments made in excess of Rs.20,000/- are liable for deduction of tax at source. Therefore, the total dis-allowance as per the provisions of Section 40(a)(ia) of the Act, 1961 are Rs.94,93,977/- instead of Rs.4,08,433/-.
Therefore, I have reasons to believe that income to the tune of Rs.90,84,844/- has escaped assessment for the A.Y.2007-08".
f) By letters dated 23/8/2012 and 4/10/2012 the petitioner objected to the reopening of the assessment under Section 147 and 148 of the Act for the assessment year 2007-08.
::: Downloaded on - 09/06/2013 19:27:40 :::ASN 7/19 WP-2710.doc The petitioner pointed out that there is no warrant to reassess the petitioner for the assessment year 2007-08, particularly because the entire payment made by them as labour charges and radiography charges were scrutinized and considered by the Assessing Officer at the time of regular assessment. Besides the petitioner pointed out that the labour charges were paid for performing labour jobs like ducting, laying of pipes and other related labour jobs. Therefore, the same cannot be classified as professional job work.
g) On 15/10/2012 the Assessing Officer rejected the petitioner's objection dated 23/8/2012 and 4/10/2012 to reopen the assessment for assessment year 2007-08 under Section 147 and 148 of the Act. The Assessing officer disposes of the objections of the petitioner to the proposed reopening of assessment for assessment year 2007-08 as under:
"In this case this is to inform you that your objections in respect of ongoing assessment proceedings have been carefully considered by the undersigned. The following facts lead to initiation of proceedings u/s.147:
a) There is difference of Rs.2161168 on
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account of payments received by you and as per the TDS Certificates issued by you from the following parties, in F.Y. 2007-07 relevant to A.Y.
2007-08;
S.No. Deductor's Name Difference
Amt. In Rs.
1 Hindalco Industries Ltd. 62835.00
2 IFFCO, Allahabad 70328.00
3 Onshore Const. Co. Pvt. Ltd. 151943.00
4 Petron Engg. Const. Ltd. 25416.00
5
6
Power Mech Projects P. Ltd.
Reliance Industries, Jamnagar
22189.00
536577.00
7 Tulasidharan Bhaskaran Metal Crafts, Surat 731493.00
8 UB Engg. Ltd. Pune, 526647.00
9 United Construction Co. 33743.00
b) The total difference of Rs.21,61,168 had
led to under assessment of income.
c) The payments made under the head
Radiography charges and Labour charges
aggregating to Rs.17,23,647 and 77,69,630 were made to various persons like Sr. Technician, Asstt. R.T. Technician, Jr. Technician, Sr. Asstt. Radiologist etc. as is evident from the chart of such payments submitted by you in the earlier assessment proceedings. Thus all such payments, ::: Downloaded on - 09/06/2013 19:27:40 ::: ASN 9/19 WP-2710.doc unambiguously, fall in the category of payments made for receiving technical services, attracting the provisions of Section 194J and 194C. Thus, for the purposes of Chapter XVII-B, the threshold limit of Rs.20,000/- would be applicable instead of Rs.50,000/-.
d) As no TDS was deducted from the payments which exceeded the threshold limit of Rs.20,000/- the expenses were liable for dis- allowance u/s.40 (a)(ia) of the I.T. Act.
e) ig At no stage of the earlier assessment proceedings you established the fact that the payees were not qualified professional. Even in the present proceedings you have failed to establish the same with documentary evidence;
f) The leniency sought by you, in light of death of one of the partners, even though unfortunate, is irrelevant to the present proceedings;
g) The above facts were not considered by the then A.O. Thus leading to escapement and under assessment of income by Rs.1,12,46,012.
3) In view of the above facts, I am convinced that the reopened assessment proceedings, for A.Y.2007-08 are valid and the notice issued u/s.148 is in accordance with the ::: Downloaded on - 09/06/2013 19:27:40 ::: ASN 10/19 WP-2710.doc provisions of law. Hence, your objection to the present proceedings u/s.147 and that in respect of issue of notice u/s. 148 are without any basis and accordingly the same is rejected. Accordingly, your objection stands disposed off.
You are requested to file requisite details as per questionnaire dated 23/7/2012."
h) The respondent has filed an affidavit in reply dated 20/11/2012 in support of the impugned notice. In its reply the respondent have annexed a communication dated 14/3/2012 addressed by the Assessing officer to the Joint Commissioner of Income Tax seeking his approval to reassess the petitioner for the assessment year 2007-08. In that communication the Assessing officer has referred to the objection raised by the internal auditor of the department to assessment order allowing the expenses on account of radiography and labour charges holding them to be contract payments for the deduction of source.
4) Ms. Aasifa Khan, Counsel appearing for the petitioner in support of the petition submits as under:
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a) Even where the impugned notice dated 28/3/2012
under Section 148 of the Act has been issued within a period of four years from the end of the relevant assessment years the jurisdiction to reopen an assessment cannot be exercised merely on account of change of opinion;
b) All material facts with regard to assessment year 2007-08 had been disclosed by the petitioner to the Assessing officer during the original assessment proceedings leading to assessment order under Section 143(3) of the Act dated 11/12/2009. There is no new material fact which has come to the notice of the Assessing officer that could lead to his reasonable belief that income has escaped assessment. In fact, the reasons provided only indicate a different opinion on same facts duly considered in the assessment order dated 11/12/2003 passed under Section 143(3) of the Act;
c) The reasons for reopening as communicated to the petitioner does not indicate as one of the reasons that amount of Rs.21.61 lacs being the difference between the amount received by the petitioner and the tax deduction at source certificate issued by the payer. However, the aforesaid ground is indicated as a ::: Downloaded on - 09/06/2013 19:27:40 ::: ASN 12/19 WP-2710.doc reason for rejecting the objection to reopening the assessment for assessment year 2007-08 under section 148 of the Act. This according to her is clearly not permissible; and
d) The impugned notice has been issued by the Assessing Officer at the instance of the internal audit report and not on independent application of mind on the part of the Assessing Officer. In support she invites our attention to the affidavit in reply and in particular letter dated 14/3/2012 addressed by the Assessing officer to the Joint Commissioner for approval to reopen assessment. In the aforesaid letter seeking sanction to reopen assessment, mention is made of objection raised by the internal audit department. This is clearly not permissible.
In view of the above, the petition be allowed and the impugned notice be quashed and set aside.
5) As against the above, Mr. Arvind Pinto, Counsel appearing for the revenue submits as under:
a) The impugned notice has been issued within four years from the end of the relevant assessment year and therefore, cannot be faulted;
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b) The reopening of the assessment by a notice dated
20/3/2012 under Section 148 of the Act is valid and proper as income had escaped assessment for the assessment year 2007-
08 inasmuch as the petitioner had claimed deduction of payment made on account of labour charges and radiography charges without having disclosed the fact that such payment have been made to skilled persons. Therefore, professional payments;
c) The payment made to skilled personnel are in the nature of technical fees liable to tax deduction at source under Section 194J of the Act and not 194C of the Act as done in the assessment order dated 11/12/2009. Consequently, any fees paid for technical services in excess of Rs.20,000/- has to bear tax deduction at source. Therefore, the Assessing Officer has reason to believe that income has escaped assessment for assessment year 2007-08; and
d) No prejudice would be caused to the petitioner if it subjects itself to reassessment proceedings. This is because all the pleas of the petitioner with regard to the inapplicability of Section 194C of the Act would be examined during the reassessment proceeding.
::: Downloaded on - 09/06/2013 19:27:40 :::ASN 14/19 WP-2710.doc In view of the above, Mr. Pinto submits that the petition be dismissed.
6) We have considered the submissions. We find that Notice dated 20/3/2012 under Section 148 of the Act has been issued within a period of four years from the end of the relevant assessment year i.e. 2007-08. In such circumstances, the proviso to Section 147 of the Act is clearly not applicable. Therefore, it is not necessary for the revenue to prima facie establish that there has been a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment, while issuing a notice reopening a completed assessment. However, even in case of reopening of assessment within a period of four years from the end of the relevant assessment year the Assessing officer has to have reason to believe that income chargeable to tax has escaped assessment on the basis of tangible material.
The word "reason to believe" has been construed by the Supreme Court in the matter of CIT Vs. Kelvinator India Limited reported in 320 ITR Page 561 wherein the Court has observed as under :
"However one needs to give schematic interpretation to the words "reason to believe"
failing which we are afraid Section 147 would give arbitrary powers to the Assessing officer to ::: Downloaded on - 09/06/2013 19:27:40 ::: ASN 15/19 WP-2710.doc reopen assessment on the basis of "mere change of opinion" which cannot be per se reason to reopen. We must keep in mind the conceptual difference between power to review and power to reassess. The Assessing officer has no power to review; he has power to reassess. But reassessment is to be based of fulfillment of certain preconditions and if the concept of 'change of opinion' is removed as contended by the department then in the garb of reopening of assessment review would take place".
The aforesaid observation of the Apex court make it clear that sanctity must be attached to the assessment orders and it cannot be disturbed merely on account of change of opinion. This sanctity to assessment orders is not based on the basis of the time that has lapsed from the assessment order passed in the regular proceedings to the issue of notice for reopening an assessment.
7) Therefore, where all material facts necessary for determination of the income have been disclosed by the assessee and the Assessing officer has taken a particular view on those disclosed facts as reflected in the Assessment order passed in regular proceedings, then without anything more, it would not be open to reopen those assessment proceedings. For in such a ::: Downloaded on - 09/06/2013 19:27:40 ::: ASN 16/19 WP-2710.doc case it is a clear case of change of opinion. In the present facts it is very clear that during the assessment proceedings leading to the assessment order dated 11/11/2009 the petitioner had disclosed all facts with regard to deduction being claimed on account of labour charges and radiography charges. In fact, the assessment order dated 11/12/2009 records the fact that a notice was issued to the petitioner to explain why expenses on account of labour and radiography charges should not be disallowed under Section 40(a)(ia) of the Act. The petitioner explained its view point and the Assessing officer on consideration of those facts in his order of assessment dated 11/12/2009 concluded that these payments on account of radiography charges and labour charges are tax deductible at source in terms of Section 194C of the Act. Further, the obligation on the part of the assessee is only to make a full disclosure of primary facts and the inferences to be drawn there from and the application of law thereon is the job of the Assessing officer. The petitioner has disclosed all primary facts and on consideration of those facts as reflected in the assessment order dated 11/12/2003 the amount of income has been computed after holding that TDS has to be deducted under Section 194C of the Act.
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8) Therefore, the impugned notice and the reasons in
support thereof clearly indicates that it has been issued merely on the basis of change of opinion and would amount to a review of the Assessment Order dated 11/12/2003. Further, the reasons for reopening as communicated by the petitioner is not on the basis of any tangible material but merely on verification of the material and primary facts already on record that the Assessing officer has duly considered while passing the order dated 11/12/2003 for Assessment Year 2007-08.
ig There is no fresh tangible material which would warrant taking a view different from the one taken during the regular assessment proceedings. In fact even the order dated 15/10/2012 disposing of the objections clearly records that radiography charges and labor charges were made to various persons like Senior Technicians, Senior Radiographer and Jr. Technicians etc. from the chart submitted in the regular assessment proceeding leading to order dated 11/12/2009. Therefore, it is very clear that impugned notice for reassessing the assessment year 2007-08 has been issued merely on change of opinion and in fact seeks to review the assessment which is already completed.
9) One more aspect of the matter must be adverted to
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and that is in the order dated 15/10/2012 rejecting the objections filed by the petitioner with regard to reassessment proceedings for assessment year 2007-08 a completely new ground has been added. In its order dated 15/10/2012 the additional ground to reopen assessment is the lack of co-relation between the payment received by the petitioner and the TDS Certificate issued by the persons making payment to it during the assessment year 2007-08. This according to order dated 15/10/2012 resulted in under assessment of income to the extent of Rs.21.61 lacs. The aforesaid issue was not one of the grounds specified in the reasons communicated to the petitioner on 23/7/2012 for the purpose of reopening the assessment for assessment year 2007-08. Our Court in the matter of Hindustan Lever Ltd. v. R.B. Wadkar, Assistant Commissioner of Income Tax and others reported in (2004) 268 ITR Page 332 has held that for the purpose of examining the jurisdiction to reopen a completed assessment one is only concerned with the reasons recorded at the time of issuing notice under Section 148 of the Act. These reasons cannot be supplemented/ improved upon later. Therefore, the order dated 15/10/2012 disposing of the objection also cannot be sustained. So far as the ground urged by Ms. Khan that reopening of assessment has been done on the ::: Downloaded on - 09/06/2013 19:27:40 ::: ASN 19/19 WP-2710.doc basis of audit objection, the same is not being examined. This is for the reason that even otherwise, the impugned notice is not sustainable.
10) In view of the above, we find that the impugned notice dated 28/3/2012 is bad in law as the same has been issued merely on account of change of opinion and amounts to review of assessment order dated 11/12/2009. In the circumstances, the petition is allowed and the notice dated 28/3/2012 issued under Section 148 of the Act is quashed and set aside.
11) Petition allowed. No order as to costs.
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