Areva T&D vs. ADIT (Delhi High Court)

Despite view taken in s. 195(2)/197 order, s. 147 reopening valid

The assessee was awarded contracts for on-shore supply, on-shore services and off-shore supply by Power Grid Corporation of India Ltd (PGCIL). PGCIL filed an application u/s 195(2) and obtained an order from the AO that tax had to be deducted at 10% on certain payments and at Nil rate on other payments. The assessee obtained s. 197 certificates to the same effect. Subsequently, the AO revised the s. 197 order and directed that tax be deducted at a higher rate even in respect of payments received in earlier assessment years for which Nil rate had been prescribed. This was challenged by the assessee and it was held by the High Court that the revision in TDS rates would apply prospectively. Subsequently, the AO issued a s. 148 notice alleging that income had escaped assessment. This was challenged by the assessee on the ground that as the s. 195/197 orders had been passed after full application of mind, the reopening was based on a “change of opinion”. HELD dismissing the Petition:

(i) It is well settled that orders passed u/s 195(2) and 197 are provisional and tentative. These orders do not bind the AO in regular assessment proceedings. and do not preempt the Department from passing appropriate orders of assessment. The fact that a determination u/s 195 & 197 is an “order” subject to challenge u/s 264 does not make any difference (Dodsal 260 ITR 507 (Bom) & Elbee Services 247 ITR 109 (Bom) followed);

(ii) Under Explanation 2 (a) to s. 147, a case where no return is filed is deemed to be a case where income has escaped assessment. On a conjoint reading of s. 195 and 197, if any opinion is expressed at the time of grant of certificate it is tentative or provisional or interim in nature and does not debar the AO from initiating proceeding u/s 147 on the ground that there has been a change of opinion.