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TMI Blog2020 (3) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... opriate writ, order or direction for quashing and setting aside the impugned notice dated 29.03.2018 u/s. 148 of the Income Tax Act, 1961 at Annexure- A and the order dated 07.08.2018 disposing the objections at Annexure-H. (C) Your Lordships may be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction asking the respondent not to proceed further in purusance of impugned notice dated 29.03.2018 u/s. 148 of the Income Tax Act, 1961 at Annexure-A and the order dated 07.08.2018 disposing the objections at Annexure-H. (D) Pending admission, hearing and final disposal of the present petition, be pleased to stay the implementation, operation and execution of the impugned notice dated 29.03.2018 u/s 148 of the Income Tax Act, 1961 at Annexure-A and the order dated 07.08.2018 disposing the objections at Annexure-H. (E) Your Lordships may be pleased to grant any other and further relief which may be deemed fit and proper in the interest of justice." 4. The petitioner is a Private Limited Company incorporated under the provisions of the Companies Act, 1956. The petitioner is engaged in the business of manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent that the assessee was also required to deduct TDS on the payment of Rs. 1,64,109/made to M/s Damani Shipping Pvt.Ltd Deduction of TDS on the payment made to M/s Damani Shipping Pvt.Ltd on account of agency charges substantiates that TDS is required to be deducted also on the payment of Import expenses. However, no TDS was deducted on the same though the assessee was required to deduct TDS thereon. Thus, it is evident that the assessee has failed to comply the provision of chapter XVIIB of the IT Act on the payment of Rs. 1,64,109/and therefore in view of the Section 40(a)(ia) of the Actm the impugned expenditure is not allowable. 2.2 It is also seen that the assessee company has debited a sum of Rs. 97,593/payable to Gujarat Energy Transmission Commission for Operation and Maintenance of its Windmills (O&M charges for transmission lines). On this payment TDS was required to be deducted by the assessee however, the assessee has failed to deduct TDS thereon. Thus, it is evident that the assessee has failed to comply the provision of chapter XVIIB of the IT Act on the payment of Rs. 97,593/and therefore in view of section 40(a)(ia) of the Act, the impugned expenditure is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Nature of Payment Amount of Payment in Rs. 1 Wharfag Expenses 5,86,487/ 2 Import expenses 1,64,109/ 3 O&M charges 97,593/ Total 8,48,189/- Despite the fact that the assessee was liable to deduct TDS on the above mentioned expenditure, the assessee without deducting the applicable TDS has made payment. Thus, it is clear that there is failure on the part of the assessee to comply the provision of Chapter XVIIB of the I.T.Act and therefore the expenditure claimed to the tune of Rs. 8,48,149/is not allowable as deduction. 3.1 In so far as bonus amounting to Rs. 14,90,000/paid three directors is concerned, the same is not allowable in view of Section 36(1)(ii) of the Act. As per section 36(1)(ii) of the Act, Bonus or Commission paid to the employee for services rendered allowable subject to the condition that the payment is not made in lieu of dividend. It is well settled facts that if the bonus or commission is paid to the shareholders in lieu of profit or dividend then the impugned bonus/commission will not be allowed as deduction within the meaning of section 36(1)(ii) of the Act. In present case, the assessee company has paid bonus to the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee company, with an intention to diminish the the profit has paid bonus to its employee directors. The entire arrangment was made only to avoid the tax liability, and therefore, it can reasonably be concluded that there is a failure on the part of the assessee to disclose the true facts in respect of the impugned issue. In light of the facts discussed above and considering the provision of section 36(1)(ii) of the Act, payment of bonus claimed by the assessee as deduction is not allowable. 6. Basis of forming reason to believe and details of escapement of income:During the course of examination of the case records of the assessee company for the year under consideration the above enumerated facts and issues have been found. While examination of the case records, it is noticed that the assessee was required to deduct TDS on the payment made to the tune of Rs. 8,48,189/. However, the assessee has not deducted TDS thereon and therefore it is ample clear that the assessee has violated the provision laid down in Chapter XVIIIB of the I T Act. In such circumstances, the expenditure claimed by the assessee to the extent of Rs. 8,48,189/is not allowable in view of section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Act to point out that the details of TDS and income related which was credited in the profit and loss account and names, addresses etc. of Directors and relatives of the Directors to whom remuneration/salary was paid along with details of service rendered by them was called for. 6.3 It was pointed out from the materials on record that as per Point No.19 of the notice dated 26.10.2012 copy of TDS return in Form26Q was also called for. The petitioner provided such information on 22.10.2012 and 02.08.2013. On 17.02.2014, copies of bills of wind mill maintenance were also provided by the petitioner. The petitioner also explained in the letter dated 17.02.2014 with regard to the TDS not deducted on the amount of Rs. 5,86,487/paid for the wharfage expenses. The petitioner also tendered justification for remuneration paid to the directors in the said letter. Therefore, it was submitted that the petitioner has disclosed truly and fully all material facts during the course of assessment and the Assessing Officer, after considering the explanation tendered by the petitioner, passed assessment order under Section 143(3) of the Act. 6.4 Learned advocate for the petitioner further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said expenditure was not allowable under Section 40(a)(ia) of the Act. The fourth ground of reopening is that the petitioner paid bonus amounting to Rs. 14,90,000/to the three directors having 99.3% shareholding instead of declaring dividend despite earning huge profits. The bonus paid to the directors was in lieu of dividend, and therefore, cannot be allowed as deduction u/s 36(1)(ii) of the Act. I submit that the assessment is reopened after recording reasons to believe that income chargeable to tax has escaped assessment due to failure on part of the petitioner to disclose fully and truly all material facts necessary for assessment." 8. Having heard the learned advocates for the respective parties and having gone through the material on record, it appears that the impugned notice under Section 148 of the Act for reopening of the assessment for the Assessment Year 2011-12 is admittedly issued beyond a period of four years from the end of relevant assessment year. Therefore, the only short question which arises for consideration is whether income chargeable to tax has escaped assessment for the failure on part of the assessee to disclose fully and truly all material facts, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely because he did express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, thereforee, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessed should be made to suffer the consequences of that lapse. 17. In so far as the present appeal is concerned, we find that the assessed had placed all the material before the Assessing Officer and where there was a doubt, even that was clarified by the assessed in its letter dated 8th November, 1995. If the Assessing Officer, while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessed or to contend that because the facts were not considered in the assessment order, a full and true disclosure was not made. Since the facts were before the Assessing Officer at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147.A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." 5. For the aforestated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment beyond the period of four years from the end of the relevant assessment year when it is not even the case of the Department that the assessee had not disclosed truly and fully all material facts." 15. The Delhi High Court in the case of Convertech Equipments (P) Ltd (supra) has held as under: " 7. This Court is of the opinion that in view of the fact that no fresh circumstances have come to notice to take a different view, no substantial question of law arises on the point of the disallowance under section 36(1)(ii). The decisions of the income tax authorities involved concurrent findings on pure questions of fact. Moreover, a Division Bench of this Court in Metplast Pvt. Ltd. v. DCIT, (2012) 341 ITR 563, after referring to the judgment of the Bombay High Court in Loyal Motors Services Company Ltd. v. CIT, (1946) 14 ITR 647 opined that the commission, if found to be paid for services rendered by the director as per the terms of the appointment, cannot be said to be distribution of dividend or profits in the guise of commission. It was noticed that while commission was paid as a form of remuneration for actual services rendered, dividend is a return of investment and is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f relevant assessment year, in view of the first proviso to Section 147 of the Act, the respondent has to record the reason as to whether the income chargeable to tax has escaped assessment for the failure on part of the assessee to disclose truly and fully all material facts for its assessment for the year under consideration. 18. On perusal of the reasons recorded as well as material on record, it is evident that there was no failure on the part of the petitioner to disclose truly and fully all material facts. It is settled proposition of law that for fishing inquiry, reopening of assessment is not permissible, that too, reopening beyond the period of four years from the end of the relevant assessment year when it is not even the case of the respondent that there is a failure on the part of the petitioner to disclose truly and fully all material facts. 19. In view of the aforesaid fact situation, there is no tangible material for the respondent to come to the conclusion that there is escapment of income from assessment. Moreover, there is no live link for formation of such belief while recording the reasons for reopening the assessment. In such circumstances, when the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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