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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’: NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI L.P. SAHU
This order shall dispose of both the appeals filed by the assessee for Assessment Years 2004-05 & 2005-06, on same issue.
2. In both the appeals, the assessee has challenged the reopening of the assessments u/s 147 of the Income-tax Act, 1961 and additions on merits. Both the parties mainly argued in Assessment Year 2004-05 and submitted that the issues are common in both the appeals, therefore, orders for Assessment Year 2004-05 may be followed in another year.
We have heard Ld. Representatives of both the parties and perused the material available on record. The appeal for Assessment Year 2004-05 decided as under:-
Assessment Year 2004-05
This appeal by the Assessee has been directed against the Assessment Order dated 22/11/2012 passed by ADIT Intl. Taxation, Dehradun, for Assessment Year 2004-05 u/s 143(3)/144C(13)/147 of the IT Act.
The Assessee on Ground no. 1, challenged the order of the Assessing Officer in reopening the assessment u/s 147 of the Act. Briefly the facts of the case as mentioned in the draft assessment order are that the return of income was filed on 29/10/2004 declaring nil income. The same was processed u/s 143(1) on 24.01.2005. Subsequently, the case was reopened by issue of notice u/s 148 of the IT Act issued on 28.03.2011 requiring the assessee to file its return of income for Assessment Year 2004-05. The assessee filed the letter stating therein that the return filed originally may be treated as return of income in response to notice u/s 148 of the Act. Ld. Counsel for the assessee filed the copy of the reasons recorded for reopening of the assessment for Assessment Year under appeal i.e. 2004-05 the same reads as under:-
1. Name and address of Assessee M/s ULO SYSTEMS LLC Post Box No. 23263, Sarjah, U.A.E.
2. PA/GIR No. AAAC45048F 3. Status Company 4. Assessment Year 2004-05 5. Whether R/NR/NOR Non Resident
REASONS FOR REOPENING THE CASE
“The assessee company is a non resident company. During the year under consideration the assessee has filed the return of income on 29.10.2004 at the income of Rs. Nil by relying on DTAA between India & UAE. The return was processed on 24.01.2005 at Nil income. During the year under consideration the assessee earned the receipt of Rs. 1,06,85,301/- from HHI Contracts; for provision of grouting services in nature of Technical Services. In its computation, the assessee computed the income at Nil stating that it had no PE in India & was not required to pay tax in India as per Indo-UAE DTAA. The receipts in the nature, FTS taxable on Gross Basis @ 10% was never taken up by the A.O since the case was not scrutinized earlier. Further, it is also observed by the Hon’ble High Court of Uttrakhand in the case of CIT M/s. Rolls Royce Pvt. Ltd. [2007-TII-03-HC-UKHAND-INTL] that fee for technical services cannot be taxed u/s 44BB of the Income-tax Act, 1961. The Hon’ble High Court of Uttrakhand vide its order in Income Tax Appeal No. 239 of 2001 in the case of ONGC as agent of M/s Foramer France Dehradun, has held on 15-12-2005 that services which are technical in nature are not covered u/s 44BB(1) of IT Act. Further the Hon’ble Finance Minister while introducing Finance Bill 2010 has clarified in the explanatory note to Finance Bill that “Combined effect of the provisions of section 44BB, 44DA and 115 A is that if the income of a non-resident is in the nature of fee for technical services, it shall be taxable under the provisions of either section 44DA or section 115A irrespective of the business to which it relates. Section 44BB applies only in a Case where consideration is for services and other facilities relating to exploration activity which are not in the nature of technical services.” On perusal of return of income it is revealed that all contractual receipts are assessable in India and the assessee has a PE in India. There is failure on the part of the assessee in not assessing the receipts in India inspite of the fact that this income arises out of contracts in India & pertains to services. The above provide enough tangible material for formation of belief by the Assessing Office to reopen the assessment. In view of this revenues of Rs. 10685301/- u/s 9(1)(vii) earned during the year under consideration should be brought to tax @ 10% on gross basis. Hence I have reasons to believe that the income to that extend has escaped assessment for A.Y. 2004-05.” Sd/- ADIT 28/3/11 5.1 It is well settled law that validity of reassessment shall have to be determined with reference to the reasons recorded. Ld. Counsel for assessee submitted that there were no tangible materials available with the Assessing Officer to form requisite belief regarding escapement of income, reopening u/s 147 of the Act and assessment made u/s 143(3)/147 is without jurisdiction. He has submitted that AO on the basis of the details submitted in the return of income originally has recorded reasons for reopening of the assessment without brining any tangible material subsequently on record against the assessee.
Therefore, reopening of the assessment is invalid and bad in law. In support of his contention, he has relied upon decision of the Delhi High Court in the case of CIT vs. Orient Craft Ltd. 354 ITR 536 (Delhi) which is confirmed by Hon’ble Supreme Court by dismissing the SLP of the Department on 20.01.2014, copy of the orders are placed on record.
On the other hand, the Ld. DR submitted that AO has mentioned Judgment of High Court of Uttrakhand in the reasons and on that basis, he has formed his belief that income chargeable to tax has escaped assessment.
Therefore, reopening of the assessment is valid and in accordance with law.
We have considered the rival submissions and perused the material available on record. It is not in dispute that the assessee filed original return of income on 29.10.2004 declaring nil income and same was processed u/s 143(1) on 24.01.2005. The AO subsequently issued notice u/s 148 on 28/03/2011 and in response thereto, assessee submitted before AO that the return of income filed originally may be treated as having filed the return u/s 148 of the Act.
7.1 It is well settled law that validity of the reassessment proceedings shall be determined with reference to reasons recorded. The assessee declared all the particulars and details in the original return of income; the AO was satisfied with the same and accepted u/s 143(1) of the Act. The AO subsequently recorded the reason as above after perusal of the same return of income filed by the assessee. Thus, no tangible material was available with the AO, except details already mentioned in the original return of income. Therefore, there was no tangible material available with the AO to form requisite belief regarding escapement of income.
Hon’ble Delhi High Court in the case of CIT vs. Orient Craft Ltd. (Supra) in para no. 13, 15 & 16 relied upon by Ld. Counsel for the assessee held as under:-
“13. Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-a-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed.
15. In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income "on going through the return of income" filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in Kelvinator of India Ltd. {supra). The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-a-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the Issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147.
16. For the above reasons, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the Revenue. The appeal of the Revenue is accordingly dismissed. There shall be no order as to costs.”
8.1 The aforesaid decisions of the Delhi High Court have been confirmed by the Hon’ble Supreme Court by dismissing the SLP of the Department.
Hon’ble Delhi High Court in the case of CIT vs. Atul Kumar Swami 362 ITR 693, observed that the note already filed with the return of income disclosing nature of capital receipt, no other tangible material found, therefore notice u/s 148 was quashed.
Hon’ble Rajasthan High Court in the case of Vardhman Industries 363 ITR 625 held that reasons u/s 148 of the Act must be based on new and tangible materials. Notice passed on documents already on record is not valid.
Hon’ble Bombay High Court in the case of Sadhna Nitro Chem Ltd. Vs. ACIT & others ACIT 368 ITR 505 (Bom) held as under:-
“ Where assessments are sought to be opened beyond a period of four years from the end of the relevant assessment year before a notice to reopen can be issued, the condition precedent must be satisfied, i.e., failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Held, allowing the petitions, that the reasons in support of the notices did not in any manner indicate failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. In fact, the reasons recorded that the original claim for deduction made by the assessee for the assessment year 1998-99 was for Rs. 1.66 crores and the Assessing Officer allowed deduction of only Rs. 1.64 crores while the claim for deduction in the assessment year 1999-2000 was Rs. 2.69 crores and the Assessing Officer allowed deduction of Rs. 2.39 crores. Even if the submission of the department that the examination at the time of assessment of the assessee’s disclosure was without the aid of the subsequent decision of the Supreme court and the Department was entitled to re-examine the assessee's accounts in the light of the subsequent demand could be accepted, before a notice to reopen assessment beyond a period of four years from the end of the relevant assessment year can be issued, the condition precedent must be satisfied, i.e. failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. This was a jurisdictional issue. The notices were not sustainable.”
Hon’ble Madras High Court in the case of CIT vs. Ramachandra Hatcheries 305 ITR 117(Mad) held as under:-
“The assessee-firm ran hatcheries and poultry farms. For the assessment years 1992-93 and 1993-94, the assessments were completed determining the assessee’s total income at Rs. 3,10,280/- and Rs. 4,74,970/- respectively. On appeals by the assessee, the Commissioner (Appeals) partly allowed the appeals and granted relief under section 80HH and 80-I of the Income-tax Act, 1961, by an Order dated March 1, 1999. Assessments giving effect to the orders were passed on May 31, 1999, allowing the assessee’s claim of deduction under section 80HH, 80HHA and 80-I of the Act. However, n view of the Supreme Court decision in CIT vs. Venkateswara Hatcheries P. Ltd. [1999] 237 ITR 174 the Assessing Officer held that the assessee was not entitled to the deductions under section 80HH, 80HHS and 80-I of the Act and issued reopening notices under section 148. The assessee did not reply to the notices and the Assessing Officer completed the reassessments and held that the assessee was not entitled to relief under section 80HH, 80HHA and 80-I of the Act. On appeal, the Commissioner (Appeals) dismissed the appeals. On further appeal, the Tribunal allowed the appeals and held that the reopening of the assessments was bad in law. On appeals by the Revenue:
Held, dismissing the appeals, that the Tribunal was correct in holding that the Assessing Officer had no jurisdiction to reopen the assessments u/s 147 of the Act. Hence, the Assessing Officer was not entitled to circumvent the order passed by the Commissioner (Appeals) which had become final. Unless and until the order was set aside by the process known to law, the order was valid in law and it was binding on the lower authorities. Under such circumstances the Assessing Officer was not to reopen the assessment and seek to adjudicate the issues which had already been adjudicated by the appellant authority. Thus the Tribunal had rightly annulled the reassessment.”
Considering the facts of the case in the light of the above decisions, it is clear that in the present case, the reasons disclose that the Assessing Officer reached the belief that there was escapement of income ‘on going through the return of income’ filed by the assessee after he accepted the return u/s 143(1) without scrutiny, and nothing more. There was no new tangible material available with the AO to form his belief that income chargeable to tax as escape assessment. This is nothing but a review of earlier proceedings by the AO which is not permissible under law. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the AO subsequent to the issue of intimation. Therefore, the reopening of the assessment is wholly invalid and bad in law. The issue is squarely covered by Judgment of the Delhi High Court in the case of Orient Craft Ltd. (supra) and others refer to above.
In view of the above discussions, we are of the view that reopening of the assessment is illegal and bad in law and liable to be quashed. We accordingly, set aside the order of the authorities below and quash the reopening of the Assessment u/s 147/148 of the IT Act. Resultantly, the entire additions made in the reassessment orders stands deleted.
In the result, appeal of the assessee is allowed.
Assessment Year 2005-06
This appeal by the Assessee has been directed against the assessment order dated 12/10/2011 passed by ADIT Intl. Taxation, Dehradun, for Assessment Year 2005-06 u/s 148/143(3)/144C(13) of the Income Tax Act 1961.
Briefly the facts of the case are that, in this case the assessee filed the return of income on 31/10/2005 declaring the income as nil. Thereafter notice u/s 148 dated 31.03.2010 was issued the assessee. The return is processed u/s 143(1) of the IT Act. In this year, the AO recorded the reasons for reopening of the assessment, copy of it filed at Page No. 57 of Paper Book which reads as under:-
1. Name of Assessee M/s ULO Systems LLC 2. Address C/o SR Batliboi & Co. Golf View, Corporate Towers B, Sector 42, Gurgaon, Haryana. 3. PA/GIR No. AAACU5048F 4. Status Company 5. Assessment Year 2005-06 6. Whether R/NR/NOR Non Resident
REASONS FOR INITIATING PROCEEDINGS U/S 148
“The assessee company is a non resident company. During the year under consideration the assessee has filed the return of Income at Rs. Nil on 31.10.2005. The assessee has filed return of income under the provisions of DTAA between India and UAE. While filing the return of income the assessee has mentioned as follows:
“ Statement showing contractual receipts Gross revenues (in USD) 1 & 2 Contract with Hyundai Heavy 1,51000 Industries Co. Limited Contract with Yojaka Marine 81,270 Private Limited Contracts with Valentine 1,95,135 Total Contractual Receipts (in 427405 USD) Total Contractual Receipts (in 18,625,122 Rupees)
The above mentioned receipts include only income attributable to operations carried out in India. Amounts received outside India for activities carried on entirely outside India have been included. In this regard, reliance has been placed on, inter-alia, the following rulings:
-Saipem SPA v DCIT (88 ITD 213) (Del): -JCIT Special Range 26, Mumbai v Furgo Engineers BV (ITA No. 6246/Mum/99) (Mumbai Tribunal); -ACIT v Jindal Drilling Leasing (Unreported judgment) (Mumbai Tribunal); -DCIT v Sonat Offshore Drilling Inc (Unreported judgment) (Mumbai Tribunal); McDermott ETPM v DCIT (92 ITD 227) (Mum)
During the financial year ended March 31, 2005 ULO has received certain amounts outside India for supply of material, sold and delivered outside India, which have not been included in the receipts mentioned above. The same have not been offered to tax in India as the sake has been concluded outside India. In this regard, reliance has been placed on, inter-alia, the following rulings.
-Mahabir Commercial Co. Ltd. v CIT (86 ITR 417)(SC); -CIT v Mewar Textile Mills Ltd. (91 ITR 542) (SC); -CIT vs. Fried Krupp Industries (128 ITR 27) (Mad); -CIT v Kirloskar Oil Engines Ltd. (135 ITR 762)(Bom); and -ACIT v. Skoda Exports (172 ITR 358)(AP)”
As per the TDS certificates enclosed with the return of income it has been observed that the assessee has earned the revenues and tax has been deducted at source. The revenues earned are as follows:-
S. No. Name Amount 1. Hyundai Heavy Industries Co. Ltd. 1,65,271/- 2. Yojaka Marine Private Ltd. 3,510,864/-
3. Valentine Maritime (Mauritius) ltd. 4,11,404/- 4. Consortium of VMGL & VML 72,946/- 5. Valentine Maritime Ltd. 32,40,868/- 6. Consortium of VMGL & VML 15,77,307/- 10,07,691/- 7. Valentine Maritime (Mauritius) Ltd. 12,14,452/- 4,23,134/- 8. Valentine Maritime Ltd. 16,41,994/- 1,76,215/-