M/S. EUROFINS PEENYA RESOURCES PRIVATE LIMITED(FORMERLY KNOW AS EUROFINS ADVINUS LIMITED),BANGALORE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2(1)(1), BANGALORE

Grounds relating to treating AMC and maintenance charges as taxable 4.1. The learned assessing officer and the CIT(A). NFAC have erred in treating the payments for AMC and Maintenance charges of Rs. 49.17,872 as fees for technical services under section 9(1)(vii) of the Act. 4.2. The learned assessing officer and the CIT(A), NFAC have erred in not appreciating that certain payments classified as AMC and maintenance charges were in the nature of purchase of spares and other maintenance equipment and will thus not be taxable in India in the absence of permanent establishments of such foreign vendors in India. 4.3. Without prejudice to the above, the learned assessing officer and the CIT(A). NFAC have erred in not adopting the beneficial provisions under the Double Tax Avoidance Agreements. 4.4. The learned AO and the CIT(A). NFAC have erred in not appreciating that payments for annual maintenance contracts shall not constitute fees for technical services under relevant articles of the Double Tax Avoidance Agreement as the make available condition is not satisfied. 4.5. Based on the facts and circumstances of the case and law, payments for AMC and maintenance charges were not chargeable to tax as technical services as per the provisions of the Act and DTAA.

Subsequently the case of assessee was reopened u/s. 147 of the Act by issue of notice u/s. 148 on 31.3.2021. The main reason for reopening of the assessment is that the International Taxation Officer forwarded information that assessee has made payment of Rs.49,17,872 during the AY 2013-14 to a non-resident service provider vendor on account of annual maintenance contract (AMC) and maintenance charges without making tax deduction at source. As these payments are in the nature of fees for technical services, provisions of section 40(a)(i) is applicable in this case. Therefore, on corelation of these details with records of assessee, the ld. AO formed a reason to believe that an amount of Rs.49,17,872 paid without tax deduction at source to a non-resident is wilful act of the assessee to reduce the taxable income. Thus, this amount has escaped assessment within the meaning of section 147 of the Act. Notice u/s. 143(2) of the Act was issued on 16.11.2021. The assessee filed its objection on 30.11.2021 which was disposed on 17.1.2022. Assessee was asked to show cause the above.

The assessee submitted that liability to deduct tax at source u/s. 195 of the Act arises only when income is chargeable to tax in India as per the Act. The recipient does not have any business connection in India and therefore such sum is not liable to tax in India. The assessee also referred to DTAA Article 13(4)(c) and stated that mere rendering of the services will not result taxability of income in India. It was further stated that the condition of ‘make available’ is also not satisfied.

The ld. AO rejected all the contentions of the assessee and held that assessee is required to deduct tax at source u/s. 195 of the Act and therefore disallowance of Rs.14,17,872 was made as per the reassessment order dated 29.3.2022.

The assessee preferred appeal before the ld. CIT(A) challenging the reopening of assessment as well as the addition on merits. The ld. CIT(A) confirmed the action of the ld. AO and dismissed the appeal of assessee. Therefore, appeal is in appeal before us.

The ld. AR, Mr. Padamchand Khincha, CA, referred to the paperbooks filed and submitted that against the original assessment order, the assessee preferred appeal before the ld. CIT(A) wherein the appeal of the assessee was dismissed. Thereafter The assessee has filed an application under the Vivad Se Vishwas Act, 2020 (VSV Act) for the same assessment year on 8.2.2020 which is placed at page 249 of the PB against which Form 5 has been issued

He submitted that the facts of AY 2014-15 are also similar, therefore his argument was that reopening of assessment for both the years is bad in law on this ground.

He further referred to the reasons recorded for reopening placed at page 358 of the PB, which is a notice u/s. 148 of the Act. Further

He further submitted that as in the original assessment proceedings the ld. AO has applied his mind on the facts of the issue and examine the same in detail, there is change of opinion now for reasons recorded for reopening of the assessment which is not valid. He referred to the various notices and reply furnished during the course of assessment proceedings.

Lastly, he submitted that notice u/s. 148 of the Act was issued to the assessee for AY 2013-14 on 31.3.2021 with the reasons recorded which are placed at page 392-293 of the PB. It was submitted that the reopening of the assessment is made beyond four years from the end of the assessment year and therefore in such a situation, the AO can get a right to reopen the assessment only if there is an allegation in the reasons recorded that escapement of income is on account of failure on the part of assessee. He submits that on the reading of the whole of the reasons, there is no such allegation by the AO. Therefore, on this ground itself, the reassessment proceedings deserves to be quashed. For this proposition, he referred to the decision of the Hon’ble Karnataka High Court in the case of CIT v. Canara Bank, 155

The ld. CIT(DR), Mr. D.K. Mishra, vehemently supported the orders of lower authorities and stated that in the original assessment proceedings the addition made by the ld. AO was with respect to non-deduction of tax at source on AMC charges paid to domestic parties. Based on this, the additions were made which were confirmed by the ld. CIT(A). Against this, the assessee preferred application under the VSV Act which has been accepted. There was no issue in those appeals against the non-deduction of tax at source and consequent disallowance on payment made to non-resident. Therefore, the issue which has been settled in appeal in the impugned assessment year was on altogether different issue. The VSV Act has settled the dispute of a particular tax on a particular issue, it did not cover any other issue, may be for the same assessment year. Therefore, the argument of the assessee that reopening could not have made when the appeal for AYs 2013-14 & 2014-15 are settled under the VSV Act, 2020, cannot be accepted. He further referred to the decision cited by the ld. AR of Hon’ble Madras High Court in the case of Gopalakrishnan Rajkumar v. PCIT (2022) 445 ITR 577 (Mad) stating, that decision has been rendered with respect to section 263 of the Act and not u/s. 147 of the Act and therefore does not apply.

He further referred to the decision of the Hon’ble Gujarat High Court in the case of Amitkumar Chandulal Rajani v. PCIT [2023] 154 taxmann.com 240 (Gujarat) which was also u/s. 263 of the Act and similar is the case in 156 taxmann.com 267. Therefore, he submitted that there is no infirmity for reopening of the assessment.

With respect to change of opinion, it was submitted that only when the order u/s. 201 was issued, the AO has come to know about the payment to non-resident of similar sum without deduction of tax at source. Therefore, this issue was not therefore before the AO during the original assessment proceedings and hence there cannot be an argument that reassessment is on account of change of opinion.

On the issue that there is no allegation in the reasons recorded for reopening of assessment that there is a failure on the part of assessee, he referred to the basis for forming reason to believe and details of escapement, wherein it is categorically stated that there is a wilful act of assessee in order to reduce its taxable income for payment to non-resident without deduction of tax at source not disallowed and therefore it should be sufficient enough to invoke the provisions of section 147 of the Act.

In the rejoinder, the ld. AR vehemently submitted that decisions of Gujarat High Court though are on section 263 of the Act, they apply with equal force in the reassessment proceedings also because the same issue cannot be reagitated when it was settled under VSV Act. On other arguments, he reiterated his original arguments.

We have carefully considered the rival contentions and perused the orders of ld. lower authorities. The facts clearly show that a notice u/s. 148 was issued for AY 2013-14 on 26.8.2021 and reasons were recorded on the same date which are as under:-

Basis of forming reason to believe and details of escapement of income: The International Taxation officer has forwarded the information that the assessee has made payments of Rs. 49,17,872/- during the assessment year 2013-14 to non-resident service providers/vendors on account of AMC & Maintenance charges without making TDS. Since these payments are in the nature of fee for technical services, section 40(a)(i) is applicable in this case. In a light of the information received from International Taxation officer and correlation of the same with records of M/s Eurofins Advinus Ltd. ( Formerly known as Advinus Therapeutics Ltd), for A.Y.-2013-14, the undersigned has reason to believe that an amount of Rs. 49,17,872 /- paid to non-resident service providers/vendors on account of AMC & Maintenance charges without making TDS is wilful of act of the assessee in order to reduce its taxable income. In light of the same undersigned has reason to believe that an amount to tune of Rs. Rs. 49,17,872 /- has escaped assessment within meaning of section 147 of Income-tax Act.”

According to the provisions of section 147 of the Act, if the AO has reason to believe that income chargeable to tax has escaped assessment for any assessment year, subject to the provisions of section 148 to 153, he has every right to assess or reassess such income and also any other income which has escaped assessment and comes to his notice during the reassessment proceedings. However, there is one fetter to his right, i.e., if any action has to be taken after the expiry of four years from the end of the relevant assessment year, he could make the reassessment order assessing such income, only if the income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of assessee:-

Therefore, in the case of reassessment proceedings initiated after the expiry of four years, the AO can assume jurisdiction for reassessment only after the above conditions are satisfied.

Thus, if notice u/s. 148 is to be issued after expiry of four years, the assessee should have failed to disclose material facts and the ld. AO should have alleged and based his reasons to believe on that fact of non-disclosure by the assessee. If the AO does not state or allege that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the said assessment year, any other authority cannot infer or improve up on such reasons so recorded, therefore absence of such necessary jurisdictional facts mentioned in reasons, such reopening of the assessment cannot be upheld. The Hon’ble Karnataka High Court in the case of CIT v. Canara Bank, 155 taxmann.com 289 has categorically held so in para 16 of that order. Such is the view expressed by Hon’ble Bombay High Court also.

Merely because the AO has mentioned that non-disallowance of payment to non-resident without deduction of tax at source is a wilful act of assessee in order to reduce its taxable income is also an allegation that assessee has failed to disclose fully and truly all

An argument is raised by the learned authorised representative that when the dispute is settled for a particular assessment year involving same point in VSV 2020, the learned assessing officer could not have reopened the assessment on the same issue. Firstly, you like to state that in this case originally additions were made for non-deduction of tax at source with respect to the payment made to the resident Indian, whereas the issue involved in the reopening of the assessment is with respect to payment made to the non-resident. According to provisions of section 5 of VSV 2020 Act on matters stated in the application for settlement of disputes are covered therein. In this case, the matter settled in the VSV Act and the matter for which reopening is made are two different issues and therefore there is no infirmity in the action of the learned assessing officer in not considering that the matter settled in VSV 2020 is the same as involved in the reopening. The judicial precedents cited before us are in fact related to section 263 of the income tax act, but those decisions have quashed the revisionary proceedings only for the reasons not the matter settled in that scheme and the matter for which the revisionary proceedings are initiated are same.

Accordingly, ground no. 2 relating to reopening of the assessment is allowed as indicated above.

In view of our decision on ground no.2, all other grounds of appeal become infructuous and hence dismissed.

Both the parties categorically submitted that so far as reopening of assessment is concerned, are identical to AY 2013-14.

As we have already decided this issue for AY 2013-14 in the case of assessee wherein we have quashed the reassessment proceedings and undisputedly the facts are similar, we also quash the reassessment proceedings for AY 2014-15. Accordingly, we allow ground no.2 of the appeal against the reopening of assessment and dismiss all other grounds of appeal as infructuous.

Accordingly, both these appeals of assessee are partly allowed.