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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’, NEW DELHI
Before: SH. BHAVNESH SAINI & SH. O.P. KANT
Appellant by S/sh. Ravi Sharma & Rishabh Malhotra, CAs Respondent by Sh. T.M. Shiv Kumar, CIT(DR) Date of hearing 30.08.2017 Date of pronouncement 06.10.2017 ORDER PER O.P. KANT, A.M.:
This appeal by the assessee is directed against order dated 18/11/2011 passed by the Assessing Officer for assessment year 2003- 04 pursuant to the direction of the Ld. Dispute Resolution Panel (DRP). The concise grounds of appeal filed by the assessee on 23/12/2016 are reproduced as under:
1. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in assuming jurisdiction under Section 148 of the Act and the DRP has further erred in upholding/confirming the action of the Ld. AO since the notice issued under Section 148 of the act is not valid.
2. On the facts and in circumstances of the case and in law, the Ld. AO erred in proposing, and the DRP has further erred in upholding/confirming the action of the Ld. AO, that the appellant had entered into turnkey projects and as such to be assessed on the gross turnover and the net taxable income be estimated at 26.92% of such gross turnover. 3. On the facts and in the circumstances of the case and in law, the Ld. AO erred in proposing, and the DRP has further erred in upholding/confirming the action of the Ld. AO, that: • The appellant has a fixed place PE in India under Article 5 of the DTAA in the form of project office (‘PO j in India. • There is a distinction between ‘Construction PE’ within the meaning of Article 5(2)(h) and the PE as defined under Article 5(1) of the Treaty, and as such only such income as is attributable to the Construction PE could be assessed to tax as had been assessed in the preceding years. • The appellant has a dependent agent PE in India in the form of M/s Arcadia Shipping Limited (‘Arcadia) without appreciating the fact that Arcadia was an independent counseltant, and not an agent of the appellant. 4. On the facts and in the circumstances of the case and in law, the Ld. AO erred in proposing, and the DRP has further erred in upholding/confirming the action of the Ld. AO, that the provisions of Section 44BB of the Act are not applicable to the appellant. 5. On the facts and in circumstances of the vase and in law, the Ld. AO erred in proposing, and the DRP has further erred in upholding/confirming the action of the Ld. AO, to levy the interest u/s 234D of the Act
2. Briefly stated facts of the case as culled out from the order of the lower authorities are that the assessee is a company incorporated under the laws of United Arab Emirates (UAE) and during relevant period, it was engaged in the fabrication and installation of onshore and offshore platforms and submarine pipelines. For the assessment year under consideration, the assessee filed return of income on 28/11/2003 declaring total income of Rs.27,81,660/-. The case was selected for scrutiny and assessment under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) was completed on 29/03/2005 at total income of Rs.29,16,189/-, which was rectified under Section 154 of the Act at Rs.23,44,528/-. Subsequently, case of the assessee was reopened and notice under section 148 of the Act was issued on 29/03/2010. In response, the assessee submitted vide letter dated 05/05/2010 to treat the original return filed by the assessee, as return filed in response to the notice under section 148 of the Act. On the request of the assessee, a copy of reasons recorded was provided to the assessee on 01/10/2010. The objections filed by the assessee for reopening of the assessment were disposed of by the Assessing Officer on 08/12/2010. In the return of income filed, the assessee declared income at the rate of 1% on gross outside India receipts and 10% of the inside India receipt on the net of expense basis. The Assessing Officer passed a draft order in terms of section 144C(1) of the Act proposing to tax both the outside India and inside India income at the rate of 28.92%. Aggrieved, the assessee filed objections before the Ld. DRP, both challenging the jurisdiction assumed by the Assessing Officer in reopening of the assessment as well as merit of the additions. 2.1 On the issue of jurisdiction, the Ld. DRP was of the view that certain material facts were not disclosed by the assessee, for example: (i) copy of audited statement of accounts including profit and loss account and balance sheet were not filed with the return; (ii) a wrong statement was made that the assessee did not have a PE in India; (iii) the fact that title of goods fast ONGC was not mentioned; (iv) misrepresentation was made that activities outside India were compensated separately; and (v) details like number of employees who carried out pre-engineering survey in India was not disclosed. 2.2 In view of the above facts, the Ld. DRP observed that even though the original assessment in this case was made under section 143(3) of the Act and more than four years had elapsed on the day of issue of notice under section 148 of the Act, the case could not be said to be covered by the proviso to section 147 as the assessee had not disclosed all the material facts. The assessee also pleaded that in the reasons recorded the AO has mentioned assessment year 2002-03, whereas the assessment year involved is 2003-04 and thus the reasons to believe the escapement of income were recorded mechanically by the Assessing Officer. This contention of the assessee was also rejected by the Ld. DRP holding that contracts which were executed during the assessment year 2002-03 continued to be executed in the assessment year under consideration and it was not the case that all new contracts were being executed during the year. In view of the observations, the Ld. DRP upheld the reopening of the assessment. 2.3 On the issue of merit of the addition, the Ld. DRP followed its finding in assessment year 2007-08 and observed that the assessee continued to derive income from contract with ONGC. The Ld. DRP upheld the finding of the Assessing Officer in draft assessment order. Pursuant to the direction of the Ld. DRP the Assessing Officer passed the final assessment order on 18/11/2011 assessing the total income at Rs.51,23,839/-. Aggrieved with the order of the Assessing Officer, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
3. With reference to ground No. 1, the Ld. counsel of the assessee submitted that in assessment year 2002-03, the assessment was reopened under section 147 of the Act after recording reasons to believe that income escaped assessment. According to the Ld. counsel reasons to believe recorded in assessment year 2002-03 are identical to the reasons recorded in the year under consideration. He submitted that in assessment year 2002-03 the assessee challenged assuming of jurisdiction under section 147 of the Act and issue of notice under section 148 of the Act before the Hon’ble High Court of Uttrakhand in Writ Petition No. 2192 of 2009. The Hon’ble High Court after considering the detailed arguments held that reasons recorded does not indicate that the assessee has failed to disclose fully and truly all material facts necessary for the assessment and consequently quashed the notice issued under section 148 of the Act and the proceedings initiated in pursuance of notice under section 148 of the Act were held as wholly illegal and without jurisdiction. Accordingly, the Ld. counsel submitted that reassessment proceeding in the year under consideration also deserve to be quashed. 3.1 The Ld. CIT(DR), on the other hand, relied on the order of the lower authorities and submitted that the assessee failed to disclose the material facts truly and fully and, therefore, the action of the Assessing Officer of reopening the assessment was justified. 3.2 We have heard the rival submission and perused the relevant material on record. We have perused the reasons recorded by the Assessing Officer in the year under consideration which are reproduced in the draft assessment order. We have also perused the reasons recorded in assessment year 2002-03, which are reproduced in the decision of the Hon’ble High Court in Writ Petition No. 2192 of 2009 in the case of the assessee. We find that the reasons recorded are identical except the change of amounts involved. In both the assessment years i.e. 2002-03 and 2003-04, the Assessing Officer has reopened the assessment in view of the decision of the Hon’ble Supreme Court in the case of CIT & Another Vs. Hyundai Heavy Industries Co. Ltd., 291 ITR 482 (SC), wherein the Hon’ble Supreme Court has observed that:
the attraction rule implies that when an enterprise (GE) sets PE in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can tax all profits from the GE derives from the source country whether through PE or not . It is the Act of setting out a PE which triggers the taxability of transaction in the source state.
3.3 We find that the Hon’ble High Court in Writ Petition No. 2192 of 2009 filed for assessment year 2002-03 (supra) after considering the decisions available on the issue in dispute concluded as under:
“39. In the light of the aforesaid, the court finds that the Assessing Officer committed a manifest error in reopening the assessment proceedings under Section 148 of the Act.
For the reasons stated above, the notice dated 31st March, 2009 issued under Section 148 of the Act does not comply with proviso to Section 147 of the Act. The reasons recorded do not indicate that the assessee has failed to disclose fully and truly all material facts necessary for the assessment. Consequently, the notice issued under Section 148 of the Act cannot be sustained and is quashed. The proceedings initiated in pursuance of the notice under Section 148 of the Act are wholly illegal and without jurisdiction and cannot be executed since the final assessment order and the notice of demand under Section 156 of the Act was issued in gross violation of the interim order of this court. The same is a nullity in the eyes of law and cannot be enforced. The writ petition is accordingly allowed. In the circumstances of the case, the parties shall bear their own cost.”
3.4 The fact that reasons to believe recorded in the assessment year 2002-03 and assessment year under consideration are identical except amount involved, has not been disputed by the parties. In the circumstances, the issue in the year under consideration of assuming jurisdiction by the Assessing Officer is covered by the decision of the Hon’ble High Court of Uttrakhand (supra) and, accordingly, we quash the reassessment proceedings initiated under section 147 of the Act in pursuance to notice under section 148 of the Act.
In respect of ground Nos. 2 to 4, the Ld. counsel submitted that while deciding the issue whether there existed Permanent Establishment (PE) of the assessee in India, the Ld. DRP has followed its own decision for assessment year 2007-08. In the assessment year 2007-08, the Tribunal held that there existed permanent establishment of the assessee, however, on further appeal by the assessee before the Hon’ble Delhi High Court in assessment years 2007-08 and 2008-09, the Hon’ble High Court held that the assessee company did not have a PE and accordingly, not taxable in India. Thus, even on merits, the case of the assessee is covered by the decision of the Delhi High Court in the assessee’s own case for assessment year 2007-08 and assessment year 2008-09. 4.1 Learned CIT(DR), on the other hand, relied on the order of the lower authorities. 4.2 We have heard the rival submission and perused the relevant material on record. The Hon’ble Delhi High Court in ITA 143/2013 and ITA 144/2013 for assessment year 2007-08 and 2008-09 respectively has clearly held that assessee did not have a PE in India. The relevant finding of the Hon’ble High Court is reproduced as under:
53. In view of our conclusion that the Assessee did not have a permanent establishment in India, the question of attributing any income of the Assessee to the PE does not arise. However, the ITAT has erroneously held that the Assessee has a PE in India. Although the ITAT has held so, it has not quantified the income attributable to the PE. Thus, the answer to question no. 4 framed in the Assessee’s appeal is answered in favour of the Assessee and against the Revenue.
4.3 Since we have already quashed the reassessment proceeding, we are not required to adjudicate upon the grounds related to the issue on merit. Even otherwise, respectfully following the decision of the Hon’ble Delhi High Court (supra), the addition made on merit attributing the profit to the PE cannot be sustained. 5. In the result, the appeal of the assessee is allowed. The decision is pronounced in the open court on 6th Oct., 2017.