Whether the fact that TDS was not deducted on certain payments, was declared so in return, even then AO can re-assess on ground of failure to make full and true disclosure of facts - NO: HC

THE issues before the Bench are - Whether reopening of assessment is warranted after the expiry of four years, although the assessee has, in pursuant to queries raised by the AO, disclosed all details of the dealers, who have received payments in excess of Rs 50 lakhs; Whether further assessment can be reopened on the alternate ground that the assessee has not provided details of payments below Rs 50 lakhs, when there is no distinction with respect to TDS liability due to the size of payments; Whether assessment can be reopened beyond the expiry of
four years, although the AO has failed to raise the issue of non-deduction of TDS, at the time, when all details of payments and dealers were provided by the assessee; Whether it is the responsibility of the assessee to raise the contention that such tax at source is not required to be deducted and justify the same by pointing out legal provisions and judgements, if any; Whether the fact that tax at source was not deducted on such payments made by the assessee was part of the returns filed, does not mean that there was no failure on part of the assessee to disclose true and full material facts; Whether prior to conferring jurisdiction on the AO, for issuing notice for reopening assessment beyond a period of four years, twin conditions of section 147 must be simultaneously satisfied; Whether once primary facts are before the AO, he requires no further assistance by way of disclosure from the assessee and Whether the assessee is duty bound to tell the assessing authority what inferences, whether of facts or law, should be drawn. And the assessee's writ is allowed.

Facts of the case

A survey action u/s.133A was carried out in the case of certain telecom companies including M/s. Vodafone Essar Ltd., in Mumbai. During the survey, it was found our that the assessee had not deducted TDS on prepaid mobile SIM cards, recharge vouchers and on roaming charges paid to other service providers. The AO was of the opinion that since it was a settled issue and held by various Tribunals and High Courts that TDS needs to be deducted on prepaid mobile cards on the payment made to the dealers in the nature of "discount", which is nothing commission akin to post paid connections, these entire expenses was to be disallowed as per section 40(a)(ia) of the Act. Similarly for the roaming charges the AO was of the opinion that for non deduction of TDS, the entire expenditure was to be disallowed as per section 40(a)(ia). The AO observed that the assessee had neither disclosed this fact nor filed any details in respect of the fact that the TDS had not been deducted on such expenditure during the assessment/reassessment proceedings. Therefore, the AO held that the assessee had not made full and true disclosure of all material facts necessary for his assessment, which formed the basis of reopening the assessment beyond the expiry of four years.

The assessee had raised detailed objections to such proposal for reopening the assessment and contended that the assessee had made true and full disclosures, and the issues were examined by the AO in the original assessment. It was contended that reopening assessment beyond a period of four years therefore, would not be permissible. However, the contentions were rejected by the AO.

Aggrieved, the assessee has filed this writ petition before the High Court.

The counsel of the assessee contended that various documents were submitted before the AO and further submitted that both these issues were at large before the AO in the original assessment. It was contended that no disallowance was made in the assessment so framed, therefore, reopening of the assessment was not permissible that too beyond a period of four years from the end of relevant AY.

On the other hand, the Departmental Representative contended that the AO had issued the notice. It was submitted that the assessee had though supplied the details of those dealers who received the commission in excess of Rs.50 lakhs, the details regarding other dealers who may have received such payments below Rs.50 lakhs was not supplied. According to the counsel, this would be the failure on part of the petitioner to disclose true and full facts.

Having heard the parties, the High Court held that,

++ in the original assessment, we notice that the assessee in response to the queries raised by the Assessing Officer under communication dated 6.12.2007 provided various details including the details of dealers’ commission and the list of dealers who received such commission in excess of Rs.50 lakhs during the period under consideration. As stated in the said communication the petitioner also supplied a list of dealers who received such commission in excess of Rs. 50 lakhs;

++ like-wise with respect to roaming charges paid by the petitioner to other telecom service providers, we find that the Assessing Officer had under his communication dated 3.10.2007 raised several written queries. Such details were also attached along with letter dated 8.11.2007. Since such details run into several pages, it would be too cumbersome for us to reproduce the same in this order. Suffice it to note that the petitioner provided the details of large number of such service providers and instances of payment of roaming charges for different telecom circles totalling to Rs.34.10 crores(rounded off) towards roaming revenue and Rs.29.54 crores(rounded off) towards roaming expenses;

++ from the above, it becomes abundantly clear that on both the issues, the Assessing Officer now proposed to reopen the assessment beyond a period of four years from the end of relevant assessment year, there was full and true disclosure on part of the petitioner. With respect to the first issue of discount/commission, the Assessing Officer called for the details of such payments in excess of Rs.50 lakhs. Such details were promptly provided. No further questions arose from the Assessing Officer in this regard. Like-wise, during the assessment, the Assessing Officer also called upon the petitioner to supply full details of the roaming charges paid to various telecom operators. Such details were also made available;

++ if at that stage, the Assessing Officer was of the opinion that such charges paid by the petitioner incurred the liability of deducting tax at source, he could surely have expressed such opinion in his assessment order or if he had any doubt about further details, he could have as well called for the same. Surely, it was not the responsibility of the assessee to raise the contention that such tax at source was not required to be deducted and justify the same by pointing out legal provisions and judgements, if any. The fact that tax at source was not deducted on such payments made by the petitioner was part of the returns filed. There was no dispute nor disguise in this respect. When full facts recording such charges been paid having come on record during such proceedings, it cannot be stated that in the present case there was failure on part of the petitioner to disclose true and full material facts;

++ in case of Calcutta Discount Co. ltd. v. Income-Tax Officer, the Constitution Bench of Supreme Court held and observed that to confer jurisdiction on assessee to issue notice of reopening of assessment beyond a period of four years, two conditions are required to be simultaneously satisfied. Such conditions are that the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have been underassessed and the second is that he must also have reason to believe that such under-assessment has occurred by reason of either omission or failure on part of the assessee to make return of his income or omission or failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the taxing officer could have jurisdiction to issue notice for the assessment or reassessment beyond a period of four years. It was further observed that such duty would not extend beyond true and full disclosure of material facts. Once such primary facts are before the Assessing Officer, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn;

++ coming back to the facts of the case, we are convinced that there was no failure on part of the assessee to disclose truly and fully all material facts. Though an attempt on behalf of the Revenue was made before us to contend that by supplying the list of only those dealers who received commission in excess of Rs. 50 lakh, the petitioner failed to discharge such onus of disclosing true and full facts, we are afraid such a contention cannot be accepted for variety of reasons. Firstly, this issue is nowhere borne out from the reasons recorded. Secondly, the petitioner replied to a query of the Assessing Officer and supplied such details in this regard which were called for. Thirdly, with respect to liability to deduct tax at the source, there is no distinction even suggested by the Assessing Officer on the basis whether such payment was in excess of Rs. 50 lakhs or below.