2016 (9) TMI 1141 - AT - Income Tax

Reopening of assessment - reason to believe - income earned from the Navsari Project -Held that - As no income has been earned from the Navsari Project which is a contract agreement dated 12th September, 2009. Hence in this year also the reopening u/s 147 is again based on wrong assumption of fact qua the income earned by the assessee in this year, therefore, our finding given in aforesaid appeal will apply mutatis mutandis in this year also. Accordingly, we hold that, the entire reopening under section 147 is bad in law and hence the appeal of the assessee is treated as allowed.

Issues Involved:

1. Initiation of reassessment proceedings under section 147.
2. Taxability of income from offshore supply in India.
3. Treatment of different contracts as one composite contract and taxing the entire revenue under section 44BBB.
4. Tax rate on fees for technical services/royalty income received from ABB Limited and ABB Global Industries & Services Limited.
5. Non-credit of tax deducted at source (TDS), levy of interest under sections 234B and 234C, and initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Initiation of Reassessment Proceedings under Section 147:

The assessee challenged the initiation of reassessment proceedings under section 147, arguing that the reopening was based on incorrect facts. The AO issued a notice under section 148, claiming that the assessee had not offered an income of ?11,71,99,716 received from Power Grid Corporation of India Ltd. for tax, despite TDS being deducted. The AO's reasons for reopening were based on a contract dated 12th September 2009 for a project at Navsari, which was not applicable for the assessment year 2008-09. The correct contract was dated 29th March 2005 for a project at New Delhi. The Tribunal held that the reopening was based on incorrect facts and wrong assumptions, making the entire proceedings void ab initio.

2. Taxability of Income from Offshore Supply in India:

The assessee argued that the income from offshore supply was not taxable in India as the sale was concluded outside India on a principal-to-principal basis. The AO contended that the entire contract, including offshore supply, should be treated as one composite contract taxable under section 44BBB. The Tribunal noted that the offshore supply was a separate component of the contract, concluded outside India, and thus not taxable in India. The AO's assumption that the entire contract was a turnkey project taxable under section 44BBB was incorrect.

3. Treatment of Different Contracts as One Composite Contract:

The AO treated the different contracts (offshore supply, onshore supply, and onshore services) as one composite contract and taxed the entire revenue under section 44BBB. The Tribunal found that the AO's reasoning was based on an incorrect contract and that the offshore supply was a separate contract concluded outside India. Therefore, the AO's treatment of different contracts as one composite contract was incorrect.

4. Tax Rate on Fees for Technical Services/Royalty Income:

The assessee contended that the fees for technical services/royalty income received from ABB Limited and ABB Global Industries & Services Limited should be taxed at 10% as per the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland. The AO taxed these incomes at 40% plus surcharge and education cess. The Tribunal did not specifically address this issue in detail due to the quashing of the entire proceedings based on the incorrect initiation of reassessment.

5. Non-Credit of TDS, Levy of Interest, and Penalty Proceedings:

The assessee challenged the non-credit of TDS, levy of interest under sections 234B and 234C, and initiation of penalty proceedings under section 271(1)(c). The Tribunal did not specifically address these issues in detail due to the quashing of the entire proceedings based on the incorrect initiation of reassessment.

Conclusion:

The Tribunal quashed the reassessment proceedings for both assessment years 2008-09 and 2009-10, holding that the initiation of reassessment under section 147 was based on incorrect facts and assumptions. Consequently, the entire proceedings were declared void ab initio, and the appeals of the assessee were allowed.

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