DCIT 7(3), MUMBAI vs. ZODIAC CLOTHING CO. LTD, MUMBAI

Both these appeals are by the Revenue against separate orders of the learned Commissioner (Appeals)-13, Mumbai, pertaining to the assessment year 2005-06 and 2006-07.

The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record observed that the assessment in case of the assessee was re- opened after four years from the end of the relevant assessment year. He also noted that while completing the original assessment, the Assessing Officer had examined the issue and made disallowance. However, in response to the Petition filed under section 154 subsequent to the order of assessment under section 143(3), the M/s. Zodiac Clothing Co. Ltd. 5 Assessing Officer again examined all the details and allowed assessee’s claim by deleting the addition of ` 7,00,96,048. He, therefore, observed that material on record clearly demonstrate that all the details and information pertaining to the payment of ` 7,00,96,048, were furnished to the Assessing Officer during the original assessment proceedings. Hence, as there is no failure on the part of the assessee in disclosing all material facts relevant for the assessment truly and fully, the proviso of section 147 would apply, hence, the conditions prescribed initiating under section 147 are not fulfilled. He further observed, re-opening of the assessment is on the basis of change of opinion is proved from the fact that in the original assessment, the Assessing Officer formed an opinion that the payment is disallowable under section 40(a)(i). Again the same Assessing Officer formed an opinion that it is an allowable expenditure while passing the rectification order under section 154. The Assessing Officer again changed his opinion with regard to the payment made while re- opening the assessment under section 147. Therefore, he concluded that re-opening of assessment on such multiple change of opinion on the same issue that too after four years from the end of the relevant assessment year is not permissible. Accordingly, he held the re- opening of assessment under section 147 to be bad-in-law and as a M/s. Zodiac Clothing Co. Ltd. 6 consequence thereof deleted the addition made by the Assessing Officer. Being aggrieved, the Revenue is in appeal before us.

The learned Departmental Representative relied upon the grounds raised by the Assessing Officer.

The learned Counsel for the assessee, on the other hand, narrating the sequence of event leading to the re-opening of assessment submitted before us, not only the fact that re-opening of assessment is made after four years without even an allegation that the assessee has failed to disclose fully and truly all material facts relating to its assessment but there is multiple change of opinion by the Assessing Officer. It was submitted, during the original assessment proceedings the assessee in response to the query raised by the Assessing Officer has produced all necessary details as well as evidences relating to the commission payment to non residents. After considering the same, the Assessing Officer completed the assessment by disallowing the commission payment under section 40(a)(i) of the Act alleging non deduction of tax on such payment. However, on assessee’s petition under section 154, the Assessing Officer passed an order allowing assessee’s claim of commission payment. Therefore, the Assessing Officer having already formed an opinion re-opening of assessment on the basis of very same fact and material on a mere M/s. Zodiac Clothing Co. Ltd. 7 change of opinion is not permissible. Accordingly, the learned Commissioner (Appeals) was justified in annulling the assessment.

We have considered the submissions of the parties and perused the material available on record. There is no dispute to the fact that in assessee’s case, the assessment was original completed under section 143(3). There is also no dispute to the fact that action under section 147 was initiated after expiry of four years from the end of the relevant assessment year. Therefore, the proviso to section 147 clearly applies. As per the proviso to section 147, in a case where assessment is completed under section 143(3), no action under section 147 can be initiated after expiry of four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts relating to his assessment. In the present case, on a perusal of the reasons recorded for re-opening of assessment, which has been reproduced in the assessment order, it is seen that re-opening is for assessing the amount of ` 7,00,96,048, allowed as deduction to the assessee in the order passed under section 154 of the Act. The reasons recorded do not reveal any allegation by the Assessing Officer that escapement of income was due to a failure on the part of the assessee to disclose fully and truly all material facts relating to its assessment. On the contrary, the reasons recorded demonstrate that the issue on which the Assessing Officer has re-opened the assessment was considered M/s. Zodiac Clothing Co. Ltd. 8 earlier at two different stages, once at the time of completion of original assessment and again in the order passed under section 154. On a perusal of the original assessment order passed under section 143(3), it is noticed that the Assessing Officer, after examining all details relating to the commission payment to non-residents was of the view that the expenditure claimed cannot be allowed as the assessee has failed to deduct tax at source on such payments. He, therefore, disallowed the expenditure claimed by invoking provisions of section 40(a)(i). When the assessee moved an application under section 154 before the Assessing Officer seeking deletion of disallowance, the Assessing Officer again examining the issue in detail allowed assessee’s claim by deleting the addition of ` 7,00,96,048, made under section 40(a)(i). Thus, from the aforesaid facts, it is very much clear that the Assessing Officer was fully aware of the issue relating to the commission payment to non-resident agents and after considering all material fact has taken a decision on the issue not only in the original assessment proceedings but subsequently also in the proceedings under section 154. That being the case, the Assessing Officer again cannot re-open the assessment under section 147 on the very same issue and on the basis of same set of facts and materials which were considered at the time of original assessment proceedings and also during the proceedings under section 154 as it amounts to M/s. Zodiac Clothing Co. Ltd. 9 change of opinion. Moreover, the Assessing Officer having taken a conscious decision in the order passed under section 154 of the Act, while deleting the addition of ` 7,00,96,048 made under section 40(a)(i), he cannot take recourse to section 147 of the Act to restore back the addition. Power conferred under section 147 of the Act on the Assessing Officer has to be exercised in genuine case of escapement of income either due to misrepresentation or non–disclosure of material facts by the assessee or because of non–consideration of a particular issue by the Assessing Officer in the original proceedings. Power of re– opening cannot be invoked arbitrarily as a tool for harassment of assessee. In our view, in the present case, the action on the part of the Assessing Officer to reopen the assessment not only amounts to harassment of the assessee but an abuse of process of law, hence, cannot be permitted under any circumstances. The learned Commissioner (Appeals), therefore, in our view, was justified in holding the re-opening of assessment to be invalid and deleting the addition made. Thus, grounds raised by the Revenue being devoide of merit dismissed.

In the result, Revenue’s appeal stands dismissed.

The Ld. CIT(A)'s order is contrary in law and on facts and deserves to be set aside.

As could be seen, in this appeal also, the dispute is with regard to learned Commissioner (Appeals)’s decision in holding re-opening assessment under section 147 to be invalid.

Briefly stated the facts in the present case are, the assessee filed its return of income on 29th December 2009, declaring income of ` 11,73,86,121. The assessment in case of the assessee was originally completed under section 143(3) of the Act on 29th December 2009. The Assessing Officer initiated action under section 147 of the Act by issuing a notice under section 148 on 24th March 2011, on the M/s. Zodiac Clothing Co. Ltd. 11 reasoning commission payment to non-resident agents amounting to ` 4,17,04,625, without deduction of tax at source was allowed as deduction, thereby resulting in under assessment of income. Though, the assessee objected to re-opening of assessment, but the Assessing Officer rejecting the objection of the assessee completed the assessment by disallowing the commission payment of ` 4,17,04,625 by alleging that the assessee has not complied with the provisions of section 195 r/w section 200(1) of the Act. Being aggrieved of the assessment order so passed, assessee preferred appeal before the first appellate authority.

Before the first appellate authority, challenging the re-opening of assessment, it was submitted by the assessee that the entire issue relating to commission payment was examined by the Assessing Officer during the original assessment proceedings. The Assessing Officer being satisfied with the explanation of the assessee that there is no liability to deduct tax on such payment allowed the commission payment while completing the assessment under section 143(3) of the Act. She, therefore, submitted that there was no tangible material before the Assessing Officer form belief that income has escaped assessment. She submitted, re-opening of assessment on an issue which has already been examined by the Assessing Officer during the original assessment and in the absence of any new tangible material M/s. Zodiac Clothing Co. Ltd. 12 coming to the possession of the Assessing Officer, amounts to change of opinion, hence, not permissible. The learned Commissioner (Appeals), after considering the submissions of the assessee in the context of facts and material on record observed that all facts and materials relating to the issue of commission payment to non-residents was before the Assessing Officer at the time of completion of original assessment. The Assessing Officer having completed the original assessment by applying his mind to all facts and materials relating to a particular issue, the re-opening of assessment on the very same issue on a mere change of opinion is not permissible. He, therefore, held, the re-opening of assessment as bad-in-law and, accordingly, deleted the addition.

The learned Departmental Representative submitted, as the Assessing Officer while completing the original assessment has neither considered nor forward any opinion on the issue on which reopening was made, there cannot be any change of opinion. He submitted the Assessing Officer in the reasons recorded has pointed out the specific instance of under assessment of income, therefore, re-opening of assessment in case of the assessee for the impugned assessment year is valid.

The learned Counsel for the assessee, on the other hand, referring to the reasons recorded, a copy of which is placed at Page-36 M/s. Zodiac Clothing Co. Ltd. 13 of the paper book submitted before us, no new tangible material has come into possession of the Assessing Officer after completing of original assessment which could have enabled him form the believe that income of the assessee has escaped assessment. The learned Counsel for the assessee submitted on the basis of very same facts and material which were available on record at the time of completion of original assessment, the Assessing Officer has formed an opinion that income has escaped assessment. She submitted while completing the original assessment since the Assessing Officer has examined all these materials and has allowed the expenditure, the re-opening of assessment on the very same material amounts to change of opinion, hence, not permissible in law. Challenging the observations of the Assessing Officer that Circular no.786 dated 7th February 2002, of the CBDT was withdrawn subsequently hence, commission payment to non-residents cannot be allowed, the learned Counsel for the assessee submitted, subsequent withdrawal of circular will not have any effect as the circular no.7 of 2009 dated 22nd October 2009 withdrawing Circular no.786 of 2000 will be operative from the date of issue and will have no retrospective effect. In this context, she relied upon the decision of the Tribunal, Lucknow Bench, in DCIT v/s Sanjiv Gupta, 135 TTJ 641 (Luck.). She also relied upon a number of other decisions to contend that CBDT circular will be effective from the date of its M/s. Zodiac Clothing Co. Ltd. 14 issuance. Further, learned Counsel for the assessee submitted, in course of original proceedings, the Assessing Officer in the questionnaire issued has specifically raised query with regard to payment made to non-resident agent and the reasons for not deducting tax on such. It was submitted, in response to such query, the assessee had submitted detailed reply furnishing the details of commission payment to the non-residents and the reasons for which such payments do not come within the purview of section 195 r/w 200(1). In this context, she drew our attention to evidences submitted during the original assessment proceedings. She further submitted, on examining the details, the Assessing Officer was satisfied that provisions of section 195 r/w section 201, were not attracted to the payments made to non-residents, therefore, he did not disallow such payment under section 40(a)(i). She submitted only because the issue was not dealt with in the assessment order will not lead to the conclusion that the Assessing Officer has not examined the issue and formed an opinion. In this context, she relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Prima Paper and Engineering Industries, [2014] 364 ITR 222 (Bom.). She submitted, even where the re-opening is done within four years from the end of the relevant assessment year, there must be reason to believe that income has escaped assessment and such reason to believe should not M/s. Zodiac Clothing Co. Ltd. 15 be on account of mere change of opinion. In this context she relied upon the following case laws:- i) Cartini India Ltd., 314 ITR 275 (SC); and ii) Idea Cellular Ltd. v/s DCIT, 301 ITR 407 (Bom.)

We have considered the submissions of the parties, perused the orders of the Departmental Authorities and the material available on record. Before deciding the validity of the re-opening of assessment, it is necessary to bear in mind certain factual issues which are very much crucial in deciding the issue. As could be seen assessment in case of assessee was originally completed under section 143(3) of the Act. On a perusal of the reasons recorded for re-opening of assessment dated 24th March 2011, a copy of which is at Page-36 of the paper book, it is observed that the Assessing Officer on re- M/s. Zodiac Clothing Co. Ltd. 16 examining the assessment records has formed an opinion that commission payment to non-resident of ` 4,17,04,625 is not allowable as circular no.786 dated 7th December 2002, has been withdrawn. Therefore, there is an escapement of income in terms with section 147 of the Act. On analysis of the reasons recorded, it is very much clear that no new tangible material has come to the possession of the Assessing Officer after completion of original assessment on the basis of which the Assessing Officer had reason to believe that income has escaped assessment. Therefore, it needs to be examined whether re- opening of assessment on the basis of same set of facts and material which were available before the Assessing Officer at the time of completion of original assessment amounts to change of opinion. The learned Departmental Representative has contested such argument of the assessee by submitting that if in the original assessment no opinion is formed there cannot be any change of opinion. In view of such arguments, it is relevant to examine whether during the original assessment proceedings the Assessing Officer has examined the issue of commission payment to non-resident or not. In this context, it is to be noted that in course of original assessment proceedings, the Assessing Officer on 17th November 2009, had issued a questionnaire to the assessee raising a number of queries. In item no.25 of the questionnaire, the Assessing Officer raised following issue.