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2016 (6) TMI 105 - ITAT MUMBAI

2016 (6) TMI 105 - ITAT MUMBAI - TMI - Reopening of assessment - disallowance under section 40(a)(ia) - Held that:- Tax audit report not only contains all necessary information but gives an insight into the business and financial affairs of the assessee for the relevant financial year. Therefore, tax audit report is not only the primary and most important document but is the foundation on which assessment proceeds. That being the case, it is totally unacceptable that the Assessing Officer at the .....

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. Thus, in absence of fresh tangible material there cannot be formation of belief in vacuum for reľopening the assessment under section 147 of the Act. Therefore, reľopening on mere reappraisal / review of material already considered at the time of original assessment tantamount to change of opinion and review of the order passed earlier. For this reason alone, impugned assessment order deserves to be quashed.

As far as merits of the issue are concerned could be seen it is clearly ev .....

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alf of the assessee and another of ₹ 8,79,322 towards service charges. It is also evident, on the service charges of ₹ 8,79,322 paid to RPPL assessee has not only deducted tax at source but RPPL has declared such amount as its income. Therefore, in the aforesaid facts and circumstances of the case, when it is evident that the payment made by the assessee to RPPL is towards reimbursement of cost of expenditure incurred on behalf of the assessee such payment cannot be subject to deduct .....

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passed by the learned Commissioner (Appeals)-20, Mumbai, for the assessment year 2007-08. 2. While the Department has filed the appeal challenging the decision of the learned Commissioner (Appeals) in deleting the addition of ₹ 8,88,11,535 made by the Assessing Officer on account of disallowance under section 40(a)(ia) of the Income Tax Act, 1961 (for short "the Act"), the assessee in its cross objection has raised the issue of validity of proceedings under section 147 of the Ac .....

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year has escaped assessment initiated action under section 147 by issuing notice under section 148 of the Act on 31st January 2012. In the course of re-assessment proceedings, the Assessing Officer called upon the assessee to explain why payment made of ₹ 8,88,11,535 to its group company M/s. Royal Palm Property Pvt. Ltd. (RPPL) without deduction of tax at source should not be disallowed under section 40(a)((ia). In response to a query raised by the Assessing Officer, it was submitted by .....

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ure incurred by RPPL on behalf of the assessee. It was submitted, the payment made by the assessee to RPPL comprised of reimbursement of cost of advertisement of ₹ 8,79,32,213 and service charges paid ₹ 8,79,322 towards administrative expenses. Thus, it was submitted by the assessee, the payment made to RPPL being towards reimbursement of cost, there is no requirement to deduct tax at source, hence, no disallowance under section 40(a)(ia) could be made. The Assessing Officer, however .....

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essee preferred appeal before the learned Commissioner (Appeals) challenging the assessment order both on the validity of re-opening under section 147 as well as on the merits of the disallowance. 4. As far as the legal issue relating to the re-opening of assessment is concerned, the learned Commissioner (Appeals) held that while completing the original assessment as the Assessing Officer had not examined the issue on which the Assessing Officer re-opened the assessment under section 147, there .....

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e TDS amount to Government account. He also found from the books of account that the assessee from time to time has made payments to RPPL towards reimbursement of expenditure incurred on behalf of the assessee and at the end of accounting year, RPPL has issued a debit note for ₹ 8,79,32,213, mentioning the reimbursement of expenditure incurred towards advertisement. Thus, having found that the payment made by the assessee to RPPL is nothing but reimbursement of cost incurred by the said co .....

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rt as required under section 44AB and the audit report contained all necessary information in respect of assessee s business activities. He submitted, in the course of original assessment proceedings, the Assessing Officer after examining the audit report and all other relevant materials completed the assessment under section 143(3). Drawing the attention of the bench to the reasons recorded for re-opening the assessment under section 147, the learned Authorised Representative submitted, there w .....

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f the disallowance is concerned, the learned Authorised Representative submitted, documentary evidence produced before the Assessing Officer as well as the learned Commissioner (Appeals) clearly demonstrate that the payment made was towards reimbursement of expenditure incurred by RPPL on behalf of the assessee. Therefore, the payment made being purely in the nature of reimbursement of cost incurred by the payee is not fee for managerial service, hence, not subject to deduction of tax at source. .....

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itted, if a particular issue / fact appearing from assessee s books of account or their documents could not be examined by the Assessing Officer with due diligence, mere production of such document will not constitute disclosure of information by the assessee so as to term it as formation of opinion by the Assessing Officer. As far as the merits of the addition made is concerned, the learned Departmental Representative submitted, the very fact that the assessee has paid service charges to RPPL t .....

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rred which comes to ₹ 8,79,322 and the assessee at the time of payment to RPPL has also deducted tax at source on this amount. 8. We have considered the submissions of the parties and perused the material available on record. At the outset, we propose to deal with the issue relating to the validity of re-opening of assessment under section 147 of the Act. Undisputedly, the assessment in assessee s case was originally completed under section 143(3) of the Act. It is evident, the assessee al .....

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ax audit report has formed the belief that as the assessee has failed to deduct tax at source on payment of ₹ 8,88,11,535 towards advertisement expenditure, the same has to be disallowed under section 40(a)(ia). Thus, it is clear from the reasons recorded that the Assessing Officer has no fresh tangible material available before him to re-open the assessment. Only on the basis of material available on record at the time of original assessment, the Assessing Officer has initiated proceeding .....

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cessary information but gives an insight into the business and financial affairs of the assessee for the relevant financial year. Therefore, tax audit report is not only the primary and most important document but is the foundation on which assessment proceeds. That being the case, it is totally unacceptable that the Assessing Officer at the time of completing original assessment has not examined the tax audit report. On the contrary, presumption should be, at the time of completing original ass .....

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fore, re-opening on mere reappraisal / review of material already considered at the time of original assessment tantamount to change of opinion and review of the order passed earlier. For this reason alone, impugned assessment order deserves to be quashed. 9. Even otherwise also as far as merits of the issue are concerned, in our view, the assessee having made out a strong case before us is bound to succeed. As could be seen, the payment of ₹ 8,88,11,535 to RPPL comprises of advertisement .....

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