2015 (7) TMI 840 - AT - Income Tax

Validity of re-assessment proceeding - assessee urged that reassessment proceedings were initiated after the expiry of the 4-years from the end of the relevant assessment year without the sanction of the concerned Principal C.I.T. or C.I.T., as the case may be - Held that - Assessing Officer is not bound to blindly follow the order of Hon ble Tribunal without applying his mind independently to the facts of the case, as to whether the ingredients that are required to be satisfied before initiation of reassessment proceedings are satisfied or not. The Assessing Officer, in this case, had not applied mind of his own at all and proceeded with reassessment proceedings solely based on the order of the Hon ble Tribunal. It is trite law that the reassessment proceedings are valid in law only when the Assessing Officer applied his mind independently to the information on hand. In the present case, it is not at all discernible as to whether the Assessing Officer had applied his mind independently and arrived at a belief that on the basis of material, which he had before him, income had escaped assessment. The Assessing Officer had not even recorded his satisfaction about the correctness or otherwise of the finding given by the Hon ble Tribunal. What is recorded by the Assessing Officer as his reasons to believe is nothing but reproduction of a portion of order of Hon ble Tribunal. The provisions of sub-section (3) of Section 149 mandates that where the income escaping the assessment belongs to a non-resident, and the reassessment is to be made on agent of non-resident in accordance with the provisions of Sec. 163 of the Act, the notice u/s.148 should be issued only within the period of two years from the end of the relevant assessment year up to 30.06.2012 or within a period of six years subsequent to 30.06.2012. In this case, the relevant assessment year is 2006-07. Reassessment notice was required to be issued on or before 31.3.2008. Whereas, in the case on hand the reassessment notice was issued on 30.03.2013, which is clearly beyond the period of limitation prescribed under sub-section (3) of Section 149 of the Act. The amended period of six years is applicable only from the assessment year 2012-13 onwards as per the Explanation to the above sub-section. Thus, viewed from any angle, the reassessment proceedings launched by the Assessing Officer cannot be upheld - Decided in favour of assessee.

Issues Involved:
1. Validity of the reassessment proceedings.
2. Classification of the assessee as an agent of Sino Hydro Corporation.
3. Application of Article XII of the DTAA between India and China.
4. Validity of the notice under Section 147.
5. Taxability of payments made to Sino Hydro Corporation under Section 44DA.
6. Estimation of profit rate for the contractor.
7. Applicability of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The appellant challenged the validity of the reassessment proceedings initiated after the expiry of four years from the end of the relevant assessment year without the sanction of the concerned Principal CIT or CIT. The tribunal found that the reassessment proceedings were based solely on the order of the Hon'ble Tribunal without independent application of mind by the Assessing Officer. The tribunal held that the reassessment proceedings were null and void ab initio as the Assessing Officer did not independently verify the facts or record his satisfaction about the correctness of the findings.

2. Classification of the Assessee as an Agent of Sino Hydro Corporation:
The appellant contested the classification as an agent of Sino Hydro Corporation and the resultant tax liability. The tribunal noted that the reassessment proceedings were initiated based on the information that Sino Hydro Corporation did not have a PAN and was not assessed to tax in India. The tribunal concluded that the Assessing Officer's reliance on the tribunal's earlier order without independent verification was insufficient to classify the appellant as an agent.

3. Application of Article XII of the DTAA between India and China:
The appellant argued that the provisions of Article XII of the DTAA between India and China should apply to the payments made, and the correct amount of tax was deducted at source. The tribunal did not delve into this issue in detail as it quashed the reassessment proceedings on other grounds.

4. Validity of the Notice under Section 147:
The tribunal examined whether the information received constituted valid reasons under Section 148 of the Income Tax Act. It found that the observation by the Hon'ble Tribunal was merely a suggestion and not a directive to reopen the assessment. The tribunal cited the Supreme Court's decision in Rajinder Nath v. CIT, emphasizing that the Assessing Officer must independently apply his mind before initiating reassessment proceedings.

5. Taxability of Payments Made to Sino Hydro Corporation under Section 44DA:
The appellant contended that the payments made to Sino Hydro Corporation should not be treated as business income under Section 44DA. However, the tribunal did not address this issue separately as it had already quashed the reassessment proceedings.

6. Estimation of Profit Rate for the Contractor:
The appellant argued against the estimation of 70% of the amount paid as taxable business income. The tribunal did not adjudicate this issue due to the quashing of the reassessment proceedings.

7. Applicability of Interest under Sections 234A, 234B, and 234C:
The appellant challenged the imposition of interest under Sections 234A, 234B, and 234C, arguing that the provisions did not apply as the assessee was an NRI and the amount was subject to tax under Section 195. The tribunal did not address this issue separately as it had already quashed the reassessment proceedings.

Conclusion:
The tribunal allowed the appeal in full, quashing the reassessment proceedings on the grounds of lack of independent application of mind by the Assessing Officer, absence of proper sanction from the competent authority, and the proceedings being barred by limitation. Consequently, it did not adjudicate the other grounds of appeal raised by the appellant. The order was pronounced in the open court on 15.07.2015.

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