2013 (7) TMI 611 - AT - Income Tax

Reassessment - Issue of Notice u/s 148 of I.T.Act, 1961 - Assessee had lodged an insurance claim for the loss of its equipment due to the barge, which was carrying the equipment, had capsized - The assessee, lodged the claim for USD 103 million, whereas, the insurance company made a payment of INR Rs. 15 million, towards the repairs on equipment namely GT2. The assessee company, therefore, filed a Civil Suit in the Civil Court at Secunderabad, against the insurance company for the recovery of its claim on the loss of its equipment - On the basis of the details of this Civil Suit, the AO reopened the assessment proceedings in the instant year, as the AO was under the belief, that the Offshore Contract for USD 103 million was signed between Lanco Kondapalli Power Projects Ltd and Hanjung. Held that - Appellant did not declare itself as the owner of the goods but rather declared as EPC contractor for the Kondapalli Power Project and that KPCL is the owner of the project - While issuing notice u/s.148, AO has recorded reasons u/s.147. He has only mentioned that there is a contract for supply of equipment worth US 103 million. He has however failed to establish even prima-fade as to how income arising out of this Offshore Equipment Supply Contract is taxable in the hands of appellant. He has mentioned about appellant having filed a recovery suit for the insurance claim. The AO has not reached to any prima-facie conclusion that there is an escapement of income in respect of the supply of equipment as per the Offshore Equipment Supply Contract - AO did not have any reason to believe for issue notice u/s.148 Appellant failed to bring any discussion on record as to how he had reason to believe before issuing notice u/s.148. There is no discussion on the material leading to the issue of notice. There is no mention of any error of judgment in the regular assessment passed - Decided against the Revenue. In regard to profit from sale of equipment Held that - The ground become infructuous in view of decision, holding the assessment proceedings to be bad in law u/s 148 Decided against the Revenue.

Summary

Issues Involved:
1. Validity of notice issued under Section 148.
2. Taxability of profit from the sale of equipment in India.
3. Taxability of inward remittance received from the Head Office.

Issue-Wise Detailed Analysis:

1. Validity of Notice Issued Under Section 148:
The department appealed against the CIT(A)'s decision that the notice issued under Section 148 was invalid. The original assessment was framed under Section 143(1). The AO reopened the assessment based on the details of a civil suit for an insurance claim, believing that the offshore contract for USD 103 million was not disclosed. However, the CIT(A) found that all relevant documents were already examined in the original assessment and that the AO had merely changed his opinion without new evidence. The ITAT upheld the CIT(A)'s decision, stating that the AO did not have sufficient reason to believe there was an escapement of income, thus invalidating the reassessment proceedings under Section 148.

2. Taxability of Profit from Sale of Equipment in India:
The department also contested the CIT(A)'s ruling that the profit from the sale of equipment was not taxable in India. The CIT(A) had found that the offshore equipment supply contract was between KPCL and Hanjung, and the appellant company was responsible only for onshore civil and construction services. The ITAT noted that this issue was already settled in the assessee's favor in previous years' assessments, where it was consistently held that there was no sale of equipment by the appellant. Consequently, the ITAT upheld the CIT(A)'s findings, rejecting the department's appeal on this ground.

3. Taxability of Inward Remittance Received from the Head Office:
The assessee appealed against the addition of Rs. 57,44,649/- as taxable income, which was received as a remittance from the Head Office. The ITAT referenced its earlier decision in the assessee's case for the assessment years 1999-2000 and 2002-2003, where it was held that such remittances were reimbursements of expenses and not taxable income. The ITAT followed this precedent and directed the AO to delete the addition, allowing the assessee's appeal.

Similarly, the department's appeal for the assessment year 2003-04, concerning the taxability of a remittance of Rs. 1,32,11,506/- from the Head Office, was dismissed. The ITAT applied the same reasoning and precedent from the assessee's earlier cases, rejecting the department's appeal.

Conclusion:
- ITA No. 3930/Mum/2006: Appeal filed by the department is dismissed.
- ITA No. 746/Mum/2007: Appeal filed by the department is dismissed.
- ITA No. 3897/Mum/2006: Appeal filed by the assessee is allowed.

Order pronounced in the open Court on 19th July, 2013.