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M/s Franchise India Holdings Ltd. Versus Assistant Commissioner of Income Tax, Circle, Chandigarh

2016 (10) TMI 324 - PUNJAB AND HARYANA HIGH COURT

Reopening of assessment - non deduction of tds on advertisement, rent, courier services and event expenses - violation of principles of natural justice - Held that:- The petitioner deserves no relief. Before the original assessment order dated 19.12.2012 was passed, the relevant record of the assessee had been destroyed in fire. On perusal of the profit and loss account finding the expenses shown therein, when compared with the previous assessment year to be higher, the assessing officer imposed .....

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fficer. He did not direct him to initiate proceedings for re-assessment. The assessing officer could have furnished reasons and reiterated his decision not to reopen the assessment. It is also important to note an aspect regarding the annotated reply. The audit objections were specifically with respect to the issue of TDS. The assessing officer's response was silent on this issue except for stating that he was informed that the record had been destroyed. He had admittedly not seen any other reco .....

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n dated 23.09.2014 addressed to the TDS wing of the department sought the record pertaining to the deposit of TDS by the petitioner with regard to the expenses on which the petitioner was supposed to deduct TDS at the time of release of payments. The record was supplied by the TDS wing to the assessing officer through letter dated 17.10.2014 on the examination of which the assessing officer found that the petitioner had, in fact, not deducted TDS as required by law on the expenses incurred by it .....

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ground that the same had been destroyed in a fire which took place in the premises of the petitioner. This fact would have also contributed towards the escapement of the above income from tax. - The plea of violation of principles of natural justice raised on behalf of the petitioner, needs to be considered only to be rejected. It is the admitted position that the petitioner was permitted to inspect the relevant record before he filed his objections to the initiation of re-assessment proceed .....

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stance of the assessee seeking therein quashing of the notice dated 24.10.2014, issued under Section 148 of the Income Tax Act, 1961 (for short the Act ) and order dated 16.04.2015, whereby the petitioner's objections to the aforesaid notice were rejected. For the assessment year 2010-11 the petitioner filed its return, declaring therein an income of ₹ 89,73,250/-. The return was processed under Section 143(1) of the Act. The case was selected for scrutiny. On being asked to produce it .....

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usiness, promotions & conveyance expenses, travelling incentives etc. to be on the higher side when compared to the previous assessment year, made a disallowance of a lump sum amount of ₹ 10,00,000/-. On 03.03.2014, audit objections were raised with regard to the petitioner's assessment to tax for the relevant assessment year. The audit objections were as under: - During the course of audit, it has been noticed that the auditor vide para 27 of the audit report has been reported tha .....

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cted by the assessee and therefore the same is liable to be disallowed under section 40(a)(ia) of the Income Tax Act, 1961. In the balance sheet, the assessee has shown ₹ 12,28,313 as TDS expenses payable. No proof of payment of TDS to the central Govt. account is available on record, therefore, the same are not allowable expenses u/s 43B of the Income Tax Act, 1961. The above discrepancies resulted into under assessment to the tune of ₹ 5,81,62,260/- involving tax effect of ₹ .....

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of a letter dated 06.01.2015. They read as under: - From the information on record, it is seen that the assessee M/s Franchise India Holidays Limited, # 2504, Sector 22-C, Chandigarh during the F.Y. 2009-10 in the profit & loss account has debited the following expenses on which TDS provisions are applicable but no TDS has been deducted by the assessee: - S. No. Expenses Amount 1 Advertisement Rs.2,88,01,473/- 2 Rent ₹ 54,35,000/- 3 Courier expenses ₹ 23,81,740/- 4 Event expense .....

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ting the record, on 09.03.2015 the petitioner filed its objections to the issuance of the aforesaid notice under Section 148 of the Act, which through order dated 16.04.2015 were rejected. It is in the background of the above facts that the petitioner through the present petition has knocked the doors of this Court for the afore-referred reliefs. Mr.Sanjay Bansal, Senior Advocate, appearing on behalf of the petitioner submitted that on receipt of the impugned notice under Section 148 of the Act, .....

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ubmitted that the denial of the documents by the respondents was a clear violation of the principles of the natural justice. It was further submitted that it was only much later on the petitioner's filing an application under the Right to Information Act, 2005 that the respondents supplied to the petitioner all the relevant documents. The documents revealed that on the audit objections dated 03.03.2014, the comments of the assessing officer had been sought for. The same were given through an .....

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the impugned notice dated 24.10.2014 to the petitioner. Thus, it was submitted that the impugned re-assessment proceedings were only on the basis of audit objections on which, on being asked to comment, the assessing officer had recommended no further action and, therefore, the matter should have been dropped then and there. The initiation of the impugned re-assessment proceedings resulted only on the receipt by the assessing officer of a diktat from the Commissioner in the form of the afore-ref .....

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. Thus, the impugned re-assessment proceedings, seeking to re-assess the income of the petitioner under the same heads, as contained in the profit and loss account which was perused earlier, according to learned senior counsel, were only on the basis of a change of opinion of the assessing officer which was impermissible in law. Per contra, Ms.Urvashi Dhugga, Advocate, appearing on behalf of the respondent submitted that there was no violation of the principles of natural justice as alleged. The .....

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pacity, to give reasons for the same, the assessing officer wrote to the TDS department and summoned the record pertaining to the petitioner and only on the receipt and perusal thereof he formed an independent opinion that the audit objections had been rightly raised and it is on such satisfaction on his part that the impugned notice dated 24.10.2014 under Section 148 of the Act, for initiating re-assessment proceedings against the petitioner, was issued. Under Section 147 of the Act, if the ass .....

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e record before him he had formed an opinion leading to the passing of the assessment order, then he cannot on a re-look of the same record, and based on a change of opinion, review his decision. The opinion of the assessing officer to initiate reassessment proceedings has to be based on new tangible material. The Apex Court in Indian & Eastern Newspaper Society Vs. Commissioner of Income Tax, [1979] 119 ITR 996 (SC), held that the view expressed by an internal audit party of the Income Tax .....

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dia Ltd., [2010] 320 ITR 561 (SC), while interpreting the words reason to believe in section 147 of the Act, the Apex Court held that the assessing officer cannot re-open assessments on the basis of mere change of opinion. Making a distinction between the power to review and to re-assess, the Apex Court held that the assessing officer had no power to review. However, he had the power to re-assess provided that such re-assessment was not a mere change of opinion and that the same is based on some .....

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d on the Assessing Officer, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. However, this belief that income has escaped assessment has to be the reasonable belief of the Assessing Officer himself and cannot be an opinion and/or belief of some other authority. In fact, the Supreme Court in the matter of India Eastern Newspaper Society v. Commissioner of Income Tax, New Delhi, reported in 119 ITR page 996 has held that whether an asses .....

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ns do not rely upon any tangible material in the audit report but merely upon an opinion and the existing material already on record. This itself indicates that there was no independent application of mind by the Assessing Officer before he issued the impugned notice. On this ground alone, the assumption of jurisdiction by the Assessing Officer can be faulted. 7. However, as submissions were made on other issues also we are examining them also. It is a settled position in law that where assessme .....

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ower to review. The Assessing Officer under the said Act has only power to reassess on fulfillment of certain precondition namely, he must have reason to believe that income has escaped assessment and that there must be tangible material to come to the conclusion that there is an escapement of income from assessment. The Apex Court cautioned that in the garb of reopening an assessment review should not take place. This court following the Apex Court in the matter of Cartini India Ltd. v. Addl. C .....

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e would be a review and not permitted under the garb of reassessment. This would be a mere change of opinion in the absence of any tangible material and is not sufficient to assume jurisdiction to issue the impugned notice. In fact, our court in the matter of Idea Cellular Ltd v. Deputy Commissioner of Income tax reported in 301 ITR 407 has held that once all the material with regard to particular issue is before the Assessing Officer and he chooses not to deal with the same, it cannot be said t .....

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judgment of this Court in State Bank of Patiala Vs. Commissioner of Income Tax [2015] 375 ITR 109. On applying the above settled principles of law to the facts of the present case, we are of the opinion that the petitioner deserves no relief. Before the original assessment order dated 19.12.2012 was passed, the relevant record of the assessee had been destroyed in fire. On perusal of the profit and loss account finding the expenses shown therein, when compared with the previous assessment year t .....

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ts of the assessing officer were sought who recommended no further action. The Commissioner through letter dated 04.09.2014 requested the assessing officer to spell out reasons for not recommending any action on the audit objections. The gist of the letter dated 04.09.2014, reads as under: - Kindly refer to your report bearing no.1921 dated 11.7.2014 on the subject mentioned above. 2. The audit objection has been raised by the IAP as the Auditors in the report pointed out that provisions of sect .....

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plied). The petitioner terms the above letter as a diktat by the Commissioner to the assessing officer leading to the initiation of reassessment proceedings. We do not agree. The Commissioner by this letter merely sought reasons from the assessing officer. He did not direct him to initiate proceedings for re-assessment. The assessing officer could have furnished reasons and reiterated his decision not to reopen the assessment. It is also important to note an aspect regarding the annotated reply. .....

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ommendation was made contrary to the audit objections which contained both reasons and provisions of law. After the receipt of the above quoted letter, the assessing officer apparently now acting in a more responsible manner through a communication dated 23.09.2014 addressed to the TDS wing of the department sought the record pertaining to the deposit of TDS by the petitioner with regard to the expenses on which the petitioner was supposed to deduct TDS at the time of release of payments. The re .....

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re later supplied to the petitioner, the re-assessment proceedings were initiated. It may be noted that at the time of framing of the original assessment, the assessing officer had sought record from the petitioner which was not produced on the ground that the same had been destroyed in a fire which took place in the premises of the petitioner. This fact would have also contributed towards the escapement of the above income from tax. Mr.Bansal placed strong reliance upon the audit report, the pr .....

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t report which reads as under: - 27. (a) Whether the assessee has complied with the provisions of Chapter XVII-B regarding deduction of tax at source and regarding the payment thereof to the credit of the Central Government. NO [Yes/No] (b) If the provisions of Chapter XVII-B have not been complied with, please give the following details*, namely N.A. (i) Tax deductible and not deducted at all (ii) Shortfall on account of lesser deduction than required to be deducted (iii) Tax deducted late (iv) .....

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