2018 (9) TMI 878 - HC - Income Tax

Reopening of assessment - reasons to believe - Income earned by the appellant from the Indian subsidiary by way of fee for technical services and royalty was not disclosed and included in the returns - assessee submitted TDS deduction criteria met - Held that - A perusal of the figures in the statement furnished in respect of the income as reported in the original return of income and the return furnished u/s 148 leaves no doubt that there is huge difference and in this context it cannot be said that the notice u/s 148 is not supported by any valid reason or reasons proposing to re-open the assessment for the assessment years between 2004-05 and 2009-10. It is only after re-opening the matter and verification of the re-conciliation of royalty and FTS income as declared in the return u/s 147 of the Act with the TDS details of SIEL, the AO recorded that the Royalty/FTS income as offered to tax in such returns was acceptable. It cannot be said that there is no escapement of income from computation in the original returns of income filed by the assessee for the Assessment Years 2004-05 to 2009-10. It is only because the SIEL affected TDS on such Royalty, FTS income, whose benefit was availed by the assessee in the revised returns that no further tax liability was incurred though income escaping assessment got taxed in fresh proceedings. Therefore, we find that this aspect of nonreporting of the receipt of income on account of royalty is a valid ground for the Ld. AO to propose the reopening of the assessment, and it cannot be said that there was no escapement of income merely because tax was deducted at source on such income. - Decided against assessee.

Issues Involved:
1. Validity of initiation of proceedings under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Non-disclosure of income earned by way of royalty and fee for technical services.
3. Applicability of the Delhi High Court judgment in Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax.
4. Impact of Tax Deducted at Source (TDS) on the assessment proceedings.
5. Reassessment and verification of income discrepancies.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 147/148:
The appeal challenges the findings of the Tribunal upholding the initiation of proceedings by the Assessing Officer under Section 147 read with Section 148 of the Income Tax Act, 1961. The Tribunal observed that the reopening of the assessment was not solely based on the statements of expatriate employees but also on the non-disclosure of royalty receipts. The Tribunal noted that the appellant had not disclosed income earned by way of royalty and fee for technical services in the original returns, which justified the initiation of reassessment proceedings.

2. Non-disclosure of Income Earned by Way of Royalty and Fee for Technical Services:
The appellant accepted that the Indian subsidiary had manufactured consumer products under technical assistance from the appellant and that royalty was payable for the use of the "Samsung" brand name. However, the appellant failed to disclose this income in the original returns filed by the branch office under the name "Samsung Electronics Co. Ltd.- India Software Operations." The returns filed in response to notices under Section 147/148 included this previously undisclosed income, indicating that the original returns were incorrect.

3. Applicability of the Delhi High Court Judgment in Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax:
The appellant contended that the judgment in Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax (2011) 336 ITR 136 was applicable. However, the court observed that this judgment would not apply as the appellant had declared additional income and accepted their failure to disclose earned income by way of royalty and fee for technical services in response to the notice for reassessment.

4. Impact of Tax Deducted at Source (TDS) on the Assessment Proceedings:
The appellant argued that TDS had been deducted on royalty and fee for technical services. However, the court held that the deduction of tax at source did not matter as the returns filed were wrong and required correction. The failure to disclose fully and truly all material facts was established, and the deduction of tax at source did not negate the need for reassessment.

5. Reassessment and Verification of Income Discrepancies:
The Tribunal noted significant differences between the income reported in the original returns and the returns filed under Section 148. This justified the reassessment proceedings. The Tribunal found that non-reporting of royalty receipts was a valid ground for reopening the assessment and that there was escapement of income from computation in the original returns. The reassessment proceedings were deemed valid despite any errors in the initial reasons recorded.

Conclusion:
The court agreed with the Tribunal's findings and dismissed the appeal, confirming the validity of the reassessment proceedings. The dismissal of the appeal did not affect any potential appeals by the Revenue for the same years.

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