9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2011 (5) TMI 858 - AT - Income TaxValidity of assessment orders - Jurisdiction of CIT u/s 263 - assessability of income relating to outside India revenue - Whether or not, according to the facts of the case the Assessing Officer has assessed the assessee on an incorrect assumption of facts or on an incorrect application of law so as to hold that the order of the Assessing Officer was erroneous - whether the view taken by the Assessing Officer was possible - HELD THAT - The Assessing Officer has given the reasons for adopting a view which is in accordance with the past history of the case and which is in conformity with the article 7(5) of the Double Taxation Avoidance Agreement. Therefore, it can be held that the Assessing Officer has taken a possible view which is according to the past history of the case and he has first reduced an amount of Rs. 1,67,83,37,937 representing the sub-contractors cost and salary expenditure upon which the TDS was deducted and, then, applied the rate of 10 percent to assess the income of the assessee. By adopting this method, the Revenue was able to collect income-tax from the assessee irrespective of the fact that whether or not the assessee has incurred heavy loss in the contracts executed by it. If the view of the Assessing Officer was a possible view based on the past history of the assessee, then, the learned Director of Income-tax could not impose his view upon the Assessing Officer unless it is shown that the view adopted by him is a possible view to be logically taken in the case of the assessee. It has already been described that the view taken by the learned Director of Income-tax in his order and in the show-cause notice could not even be taken in the further proceedings when consequential order has been passed by the Department. Therefore, on this ground it cannot be said that the learned Director of Income-tax has rightly exercised his power u/s 263 to set aside the assessment with a direction to the Assessing Officer to pass fresh assessment order. Assessability of income relating to outside India revenue - Though there is no discussion regarding non-taxation of the revenue for outside India operations in the assessment order, it has been brought on record by learned counsel for the assessee that in the office note the Assessing Officer has given the reasons for not levying the tax on such revenue and such observations of the Assessing Officer in the office note are also reproduced in paragraph 14 of this order. It has been observed by the Assessing Officer that the assessee has shown revenue from outside India operation which have not been offered to tax in the return of income stating that revenues were received from activities performed outside India and, therefore, the revenues earned out of these activities are not attributable to the permanent establishment in India. It is clear that it is not a case where the learned Assessing Officer did not apply his mind on the issues subject-matter of revision proceedings. The Assessing Officer had applied his mind. He raised the queries and replies were given by the assessee and in presence of judicial pronouncements available in the assessee's own case he took a conscious decision of not taxing the revenue from outside India operations. He was aware of the fact that the Department has preferred further appeal in the apex court. In this view of the situation, in our opinion, the Assessing Officer did not have other alternative except not to tax the outside India revenue but to write a foot-note to the assessment order describing therein the facts and circumstances in which he has taken such decision. It is also not a case of either lack of inquiry or inadequate inquiry as the learned Director of Income-tax himself has not brought on record any material to suggest that the facts relating to the years under consideration were in any way different from the facts of the cases of the preceding years where this issue was decided in favour of the assessee. In the present years also there is no material on record to suggest that the outside India revenue does not belong to Korean operation performed outside India and also that the transactions entered into by the assessee with the ONGC is not at the arm's length. There is no material on record to suggest that the permanent establishment has any nexus with the fabrication work done outside India the supply of which was handed over offshore. The Assessing Officer while framing the assessment for the year under consideration was well aware of the decision of the Tribunal and the decision of the hon'ble jurisdictional High Court in the assessee's own case and also the decision of the hon'ble Supreme Court in the case of Ishikawajima-harima Heavy Industries Ltd. 2007 (1) TMI 91 - SUPREME COURT and after considering all these decisions he did not impose tax on the revenue relating to outside India operation and his such view cannot be held to be erroneous simply for the reason that he did not make inquiry in relation to role of the permanent establishment, etc. It has already been observed that the permanent establishment, even if it existed, the revenue from outside India operation could not be taxed unless there is a nexus between the permanent establishment and the activity done and performed outside India and this is the crux of the decision of the hon'ble Supreme Court in the case of the assessee itself. Even the learned Director of Income-tax could not point out any such nexus in his order. Therefore, on the face of it, the order passed by the Assessing Officer cannot be held to be erroneous so far as it is prejudicial to the interests of the Revenue in respect of revenue relating to outside India. Therefore, on both grounds the assessment orders passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue. The powers u/s 263 have been invoked without jurisdiction as the necessary ingredients to invoke the same are absent. Therefore, we quash the impugned orders passed by the learned Director of Income-tax in respect of both years under consideration and the appeals filed by the assessee are allowed in the manner aforesaid.
Issues Involved:
1. Whether the assessment orders for AY 2005-06 and AY 2006-07 were erroneous and prejudicial to the interests of the Revenue. 2. Whether the Assessing Officer (AO) correctly computed the income for inside India operations. 3. Whether the AO correctly excluded the revenue from outside India operations from taxation in India. 4. Whether the AO applied the correct method for determining the profits attributable to the permanent establishment (PE) in India. 5. Whether the AO conducted proper inquiries and applied the correct legal standards. Detailed Analysis: 1. Whether the assessment orders for AY 2005-06 and AY 2006-07 were erroneous and prejudicial to the interests of the Revenue: The Director of Income-tax (DIT) invoked section 263 of the Income-tax Act, 1961, to revise the assessment orders, arguing that they were erroneous and prejudicial to the interests of the Revenue. The DIT contended that the AO did not properly examine various aspects, including the taxability of revenues from outside India operations and the method of computing income for inside India operations. The ITAT, however, found that the AO had taken a conscious decision based on the past history of the case and judicial precedents, and thus, the assessment orders were neither erroneous nor prejudicial to the interests of the Revenue. 2. Whether the AO correctly computed the income for inside India operations: The AO computed the income for inside India operations by first deducting sub-contractors' costs and salary expenditures on which TDS was deducted from the gross revenue, and then applying a 10% profit rate on the balance. The DIT argued that this method was incorrect and that the entire balance amount should have been assessed as income. However, the ITAT noted that the AO's method was consistent with the past practice adopted by the Department and in line with Article 7(5) of the Indo-Korean Double Taxation Avoidance Agreement (DTAA). The ITAT held that the AO's approach was a possible view and could not be considered erroneous. 3. Whether the AO correctly excluded the revenue from outside India operations from taxation in India: The AO excluded the revenue from outside India operations from taxation, relying on the decision of the Uttarakhand High Court in the assessee's own case and the Supreme Court's decision in Ishikawajima-Harima Heavy Industries Ltd. The DIT contended that the AO did not properly inquire into the nature and scope of the contracts and the role of the PE in earning the outside India revenues. The ITAT found that the AO had considered these aspects and had taken a conscious decision based on judicial precedents. Therefore, the exclusion of outside India revenues from taxation was not erroneous. 4. Whether the AO applied the correct method for determining the profits attributable to the PE in India: The AO applied Article 7(3) of the DTAA, allowing deductions for expenses incurred for the PE, including executive and general administrative expenses, and then applied a 10% profit rate on the balance. The DIT argued that the AO should have assessed the entire balance amount as income. The ITAT held that the AO's method was consistent with the past practice and in line with Article 7(5) of the DTAA, which mandates the same method year by year unless there is a good and sufficient reason to the contrary. The ITAT found no such reason and upheld the AO's method. 5. Whether the AO conducted proper inquiries and applied the correct legal standards: The DIT argued that the AO did not conduct proper inquiries and did not consider relevant judicial decisions. The ITAT found that the AO had made detailed inquiries, verified expenses from TDS returns, and considered judicial precedents, including decisions of the Uttarakhand High Court and the Supreme Court. The ITAT held that the AO had applied the correct legal standards and that the assessment orders were not based on incorrect assumptions of fact or law. Conclusion: The ITAT quashed the orders passed by the DIT under section 263, holding that the assessment orders for AY 2005-06 and AY 2006-07 were neither erroneous nor prejudicial to the interests of the Revenue. The AO's method of computing income for inside India operations and excluding outside India revenues from taxation was upheld as a possible and legally tenable view. The appeals filed by the assessee were allowed.
|
