During the original assessment proceedings, the AO had made inquiries about roaming charges,that the assessee had detailed submissions in that regard,that being satisfied with the explanation of the assessee,he passed an order u/s. 143(3) of the Act,that during the original assessment he allowed the roaming charges and did not invoke the provisions of section 40(a)(ia)of the Act,that in the notice issued u/s.148 of the Act, the basis of reopening was applicability of section 40(a)(ia)of the Act with regard to roaming charges.Thus,there was no new material before the AO for issuing the notice u/s.148. He had changed his opinion about application of the provisions of section 40(a)(ia). Reassessing the income of the assessee on such change of opinion is not permissible under the Act.The issue of roaming charges was deliberated upon during the original assessment,so,without bringing something new on record the AO should not have issued the reassessment notice.Cases relied upon by the FAA also support our views.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
Challenging the order dated 28/01/2016 of CIT(A)-8,Mumbai,the Assessing Officer (AO) has filed the present appeal.The assessee has raised a Cross Objection for the same.Assessee – company engaged in providing cellular mobile services and trades in accessories filed its return of income at Rs.Nil after set off of brought forward business loss. The AO completed assessment on 27/3/2014, u/s.143(3) of the Act, determining the income of the assessee at Rs.96.41 crores.
2. During the reassessment proceedings,in respect of services provided for roaming charges,the AO held that payments were in nature of revenue sharing, that the assessee did not deduct tax at source on the sale,that the expenses debited on account of roaming charges were not allowable as per provisions of section 40(a)(ia) of the Act for non-deduction of tax at source u/s. 194J of the Act.
2.1 Regarding the international roaming charges,the AO stated that the provisions of section 195 were much wider than any other section dealing with tax deducted at source applicable for the residents, that if the resident considered that any sum payable or part of the sum payable was not liable for deduction of tax at source it could obtain an order u/s. 195 (2) of the Act,that the assessee did not obtain the order under that section.On the legal issue of deducting of tax at source on international roaming charges,the AO observed that the department had preferred an appeal before the Hon’ble Supreme Court in the case of Bharti Cellular Ltd, that the Hon’ble Court had directed the Department to establish that any human interference was required for international roaming, that the matter of international roaming had not reached finality.He relied upon the case of Skycell of Hon’ble Madras High Court and held that the case was not reversed by the Hon’ble Supreme Court .Finally,he held that roaming charges were not in the nature of fee for technical services u/s. 194J, that tax was to be deducted at source on the amount of Rs.96.41 crore towards international roaming charges and towards national roaming charges,that the AO had not deducted the tax at source, the amounts in question were to be disallowed u/s. 40(a)(ia) of the Act.
2.2 Aggrieved by the order of the AO,the assessee preferred an appeal before The First Appellate Authority(FAA)and made elaborate submissions.It also relied upon certain case laws.After considering the reassessment order and the submissions of the assessee,the FAA held that in the course of original assessment proceedings,the AO had asked the assessee to provide party wise details of network and operating charges,roaming charges and access charges,that it had submitted the details of roaming charges and other charges vide letter dated 14/10/2010, that during the original assessment proceedings, the AO had called for the relevant details, that the assessee had duly replied the queries, raised by the AO,with supporting details,that the AO had applied his mind regarding implications in respect of roaming charges paid by the assessee and then only allowed roaming charges as deduction u/s. 37 of the Act, that the AO had formed an opinion on allowability of the roaming charges at the stage of the assessment made u/s. 143 (3) of the Act, that he had concluded that there was no amount to be disallowed u/s. 40(a)(ia) of the Act on account of non-deduction of tax at source u/s.194J, that the facts in the case under consideration left no scope for any other interpretation. He referred to cases of Kelvinator of India Ltd (256 ITR 1),NYK line (India) Ltd. (346 ITR 361), Calcutta Discount Company Ltd. (41 ITR 191) and observed that mere change of opinion in the mind of the AO could not be basis for forming reason to believe, that the section 147 did not empower the AO to review the assessment order on the same facts,that fresh application of mind by AO on similar facts would tantamount to review of his own decision,that the AO had to bring/no material on record, that in absence of fresh/new material or fresh information he would have no jurisdiction to initiate the proceedings u/s.147/148,that the perusal of the reasons recorded by the AO for initiating reassessment proceedings clearly showed that he had used the same material-that was available at the time of original assessment-for reopening the case, that it was a case of mere change of opinion, that u/s. 147 it was not permissible to restore the reassessment proceedings on change of opinion, that the AO himself had admitted that he was reopening the assessment on the basis of the profit and loss account filed for the year under consideration, that the impugned roaming charges were reflected in the profit and loss account, that the account was subject to original scrutiny assessment, that the AO had asked the assessee to submit complete details relating to roaming charges,that the disputed issue was given full consideration at the time of original scrutiny, that the AO had not brought out anything to indicate that apart from the details filed along with the return (the profit and loss account and the details omitted by the assessee during the course of original assessment),he had any other tangible material that led him to the conclusion that income had escaped assessment. Finally, he held that the AO was not justified in reopening the assessment for the year under consideration.
2.3 Before us,the Departmental Representative (DR) supported the order of the AO and stated that the AO had also made a reference to the provisions of section 40(a)(i)of the Act.The Authorised Representative (AR) stated that reopening based on mere change of opinion was bad in law, that the AO had reopened the case in absence of any new tangible material on record, that TDS provisions were not applicable to roaming charges, that payment for use of standard facilities did not amount to fees for technical services, that if there was no human intervention during roaming process the payment was not for FTS. He relied upon the cases of Kelvinator of India Ltd.(320 ITR 561)Idea Cellular Ltd (301ITR407),Plus Paper Food Pvt. Ltd.(374 ITR 485), ICICI Securities Primary Dealership Ltd (348 ITR 299) Asian Paints Ltd (308ITR195),Idea Cellular Ltd. (ITA 168 of 2015, dated 11/07/2017),Idea Cellular Ltd.(ITA/ 648-651/Bangalore/2014,dated 6/11/2015),Estel Communication Private Limited (217 CTR 102), Bharti Cellular and Others (175 taxman 573).
2.4 Before proceeding further,we would like to reproduce the reasons recorded by the AO for reopening the assessment and same reads as under:
“For the assessment year 2008-09,the assessee has debited a sum of Rs. 96.419 crore,in its P &L a/c,in respect of roaming charges; however it has not detected TDS on this payment.In fact, the services rendered in respect of roaming charges are technical services, which involved human interface/interaction/skill. Further, mobile connectivity at large scale requires reasonable amount of human and technical intervention for smooth functioning of the network. Just as in the case of assessee, the other mobile service providers have to keep their highly technical and sophisticated equipments in operating condition. Hence, human intervention cannot be ruled out.Further,FTS as per section 194J has same meaning as defined in explanation 2 to clause (vii) of subsection 1 of section 9, which is reproduced as year under:
For the purpose of this section…..
In view of the above,the roaming charges are in the nature of fee for technical services u/s. 194J.However,the assessee has not deducted TDS on the same, therefore whole of the expenses debited on account of roaming charges are not allowable as per provisions of section 40(a)(ia) of the IT Act for non-deduction of TDS u/s. 194J of the IT Act.
In view of the above, I have reason to believe that income amounting to Rs. 96.419 crore has escaped assessment in the hands of M/s. Idea cellular Ltd for assessment year 2008-09 within the meaning of section 147 of the IT Act.”
2.5 Reassessing the escaped income of an assessee is not a new concept of tax jurisprudence. Courts are of the view that income that has escaped assessment should be brought to taxation, even if the regular assessment was completed u/s.143(3)of the Act.But, courts are also of the firm view that reassessment should not be a result of change of opinion of the AO and that there should be some fresh material to initiate reassessment proceedings.As early as year 1943,in the case of Mohanlal Choradiya(11 ITR 352),the Hon’ble Madras High Court held that the Income-tax Officer can change his view,but it should be for some reason or on any fresh material and not on account of a mere change of opinion.In the case of Kedarnath(15 ITR 224),the Hon’ble Allahabad High Court held that a mere change of opinion based on same facts and figures would vitiate the reassessment proceedings.In the case of Ananthlaxmi Ammal the Hon’ble Madras High Court (28 ITR 252)had held as under:
“Section 34 was enacted both in the interests of the State and the subject. If it is necessary to prevent evasion of tax,it is equally important to protect a citizen from undue harassment by over-zealous officers.(emphasis added).The Act does not contemplate piecemeal assessment and ordinarily it is expected of an Income-tax Officer to complete his assessment for a particular year once and for all. He cannot resort to the method of piecemeal and compartmental assessment. But, at the same time, to detect evasion and to assess the escaped income, the section confers on an officer a power conditioned by the provisions of the section itself. Unless he gets definite information, i.e., clear and unambiguous information not based on gossip, rumour or surmises, which in its turn leads him to arrive at a reasonable belief that the income escaped assessment etc., he has no power to start an enquiry u/s. 34. No doubt, the word “discover” cannot in the context mean arriving at a final decision, but it can be interpreted to mean only a reasonable belief on the part of the Income-tax Officer that the income had escaped assessment. There is also an essential distinction between discovery based upon a new fact brought to the notice of the Income-tax Officer and a change of opinion arrived at by him on the facts that existed prior to the assessment, for, in the latter case, he does not receive any new information; all the facts were already within his knowledge.”(emphasis added).
From the above discussion, it can safely be said that section 147/148(Sec. 34 of the 1922 Act)were introduced to prevent the escapement of income from taxation,that the mere fact that a discovery of under-assessment was made would not justify the officer in acting under these section,that the information must be of new facts,that if those facts were already in the possession of the officer,the language of the section would not be satisfied.In our opinion,amended provisions of section 147 has not changed the position-the section stipulates that if there is no fresh material the re-opening would not be justified.Similar view was taken by the Hon’ble Supreme Court in the case of Bhanaji Lavaji(79 ITR 582).
Here,we would like to refer to the matter of Sahjanand Medical Technologies Pvt. Ltd.(397 ITR 607),of Hon’ble Gujarat High Court.In the matter of the assessee was in the business of manufacturing specialised medical equipment.For the AY.2010-11, the AO made several additions and disallowances while passing order u/s.143(3) of the Act.Subsequently, invoking section 147 of the Act,that income had escaped assessment,he issued notice u/s. 148 for reassessment.The reasons recorded by him were that the assessee’s claims of deductions on account of sums under the provision of sales return could not have been claimed by the assessee since the liability was neither known nor accrued and that the claims of deduction u/s.36(1)(viii) on account of bad and doubtful debts written off were not valid claims. On a writ petition,the Hon’ble Court held as follows:
“.. that the notice for reopening could not have been issued. It was not the legal belief of the Assessing Officer that income had escaped assessment but was compelled to issue notice which was wholly impermissible under law.that the AO had made partial disallowances of the assessee’s claims of deduction of bad and doubtful debts only after detailed and minute scrutiny of materials. Therefore, he could not be permitted to reopen the assessment as the reopening would be based on mere change of opinion… Where the initial assessment has taken place u/s. 143(3) of the Income-tax Act, 1961with the Assessing Officer undertaking a full-fledged inquiry, if in the absence of any tangible material another Assessing Officer were to come to the conclusion more than four years later that there has been an underassessment of income or a wrong claim of deduction only on the basis of the same material, then it would not satisfy the jurisdictional requirement of there having to be some tangible material which should form the basis of the belief that income had escaped assessment.
Where the Assessing Officer,after examining the return and the documents submitted along with it (including the balance-sheet, books of account, certificates of the auditors and statutory forms, etc.), did not simply accept the version of the assessee but issued a detailed questionnaire asking for specific inputs and information in relation to some of the claims, it can no longer be said that such a disclosure would still be considered to be a disclosure which is not “true” or “full” only on the basis of the same material more than four years later. That, again, would be a mere change of opinion and nothing more. It would, therefore, not satisfy the jurisdictional requirement of section 147 .
Now,we would like to consider the facts of the case. During the original assessment proceedings, the AO had made inquiries about roaming charges,that the assessee had detailed submissions in that regard,that being satisfied with the explanation of the assessee,he passed an order u/s. 143(3) of the Act,that during the original assessment he allowed the roaming charges and did not invoke the provisions of section 40(a)(ia)of the Act,that in the notice issued u/s.148 of the Act, the basis of reopening was applicability of section 40(a)(ia)of the Act with regard to roaming charges.Thus,there was no new material before the AO for issuing the notice u/s.148. He had changed his opinion about application of the provisions of section 40(a)(ia).Reassessing the income of the assessee on such change of opinion is not permissible under the Act.The issue of roaming charges was deliberated upon during the original assessment,so,without bringing something new on record the AO should not have issued the reassessment notice.Cases relied upon by the FAA also support our views.
Considering the above,we hold that the order of the FAA does not suffer from any legal infirmity.So,confirming the same,we dismiss the ground raised by the AO.
3. C.O. No.300/Mum/2017 (08-09):
As far as CO is concerned,we allow it for statistical purposes.
As a result, appeal filed by AO is dismissed and C.O. of the assessee is allowed for statistical purposes.