2010 (12) TMI 1294 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the notice u/s 148.
2. Passing of assessment order u/s 144.
3. Permanent establishment and core business activities.
4. Deduction of expenses against commission income and other income.

Summary:

1. Validity of the notice u/s 148:
The assessee challenged the validity of the notice u/s 148, arguing that the Assessing Officer (AO) had no reason to believe that income had escaped assessment. The CIT(A) upheld the notice, stating that the AO had sufficient reason to believe income had escaped tax based on the assessee's activities in the subsequent assessment year. The Tribunal agreed with the CIT(A), noting that the AO only needed a prima facie belief that income had escaped assessment, which was adequately supported by the AO's findings.

2. Passing of assessment order u/s 144:
The assessee objected to the assessment order passed u/s 144, arguing it was invalid as the reassessment was initiated u/s 148. The Tribunal rejected this objection, clarifying that the AO is empowered to resort to Section 144 for making a best judgment assessment if the assessee fails to file a return of income u/s 139(1), which is equivalent to not filing a return u/s 148.

3. Permanent establishment and core business activities:
The assessee contested the AO's determination that it had a permanent establishment (PE) in India as per Article 5 of the Agreement for Avoidance of Double Taxation between India and Singapore. The CIT(A) upheld the AO's contention, stating that the assessee's core business activities were carried out by the Industrial Sales Division (ISD) of National Panasonic India Limited (NPIL). The Tribunal found no error in the CIT(A)'s decision, noting that the AO's findings were based on adequate reasons.

4. Deduction of expenses against commission income and other income:
The assessee sought relief for expenses against commission income and other income, which were assessed on a gross basis. The Tribunal agreed to restore the matter to the AO for factual verification and fresh decision regarding the quantification of allowable expenses. The AO was directed to allow deductions for expenses incurred in connection with earning commission income from group companies and other incomes, subject to verification. For AY 2002-03, no deduction was allowed as no working for expenses was available.

Conclusion:
The Tribunal upheld the validity of the notice u/s 148 and the assessment order u/s 144, confirmed the existence of a PE in India, and directed the AO to verify and allow deductions for expenses in AY 2003-04 and 2004-05. The appeal for AY 2002-03 was dismissed, while the appeals for AY 2003-04 and 2004-05 were partly allowed for statistical purposes.