Bombay High Court

2 Ashok Kumar Gupta vs Unknown on 4 December, 2012

Bench: J.P. Devadhar, M.S. Sanklecha

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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

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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

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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.

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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


                     
             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,

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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

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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:

      ASN                           11/19                            WP-2710.doc


     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

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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;

      ASN                          13/19                           WP-2710.doc


     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.

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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

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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

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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