2021 (9) TMI 1050 - HC - Income Tax

Reopening of assessment u/s 147 - Income accrued in India - all AEs of LG Korea had PE in India in the form of LGEIL - HELD THAT - Admittedly, in one of the proceedings filed by the LGEIL challenging the order passed under Section 201(1) of the Act for Assessment Years 2005-06 to 2010-11, CIT(A) vide consolidated order dated 4th September, 2018 held that none of the AEs, apart from LG Korea, had PE in India. The said order has not been appealed against by the Department and hence the finding has become absolute. It is also not understood as to how the appellant-Revenue can contend that the respondent-assessee does not have PE in India for the purpose of 201 proceedings in the case of LGEIL but would have a PE as far as its own taxability is concerned for the same Assessment Year. This Court is of the opinion that if the present appeal is entertained, it would amount to sitting in an appeal over the judgment and order passed by the Supreme Court in 2018 (1) TMI 1610 - SUPREME COURT This Court is of the opinion that in view of subsequent events post issuance of re-assessment notice in the present case, namely, the Supreme Court judgment in 2018 (1) TMI 1610 - SUPREME COURT the proceedings initiated by the appellant-Revenue has become infructuous and accordingly ex debito justitiae, it is the duty of the Court to take such action as is necessary in the interest of justice, which includes disposing of infructuous litigation See Shipping Corpn. of India Ltd. v. Machado Bros. and Ors., 2004 (3) TMI 799 - SUPREME COURT .

Summary

Issues:
Challenge to ITAT order allowing respondent-assessee's appeal for Assessment Year 2005-06.
1. Whether ITAT erred in quashing assessment proceedings without appreciating business connection and Permanent Establishment (PE) in India.
2. Whether ITAT erred in holding no income attributable to assessee's PE in India.
3. Whether ITAT erred in setting aside re-opening of assessment under Section 147 of the Income Tax Act.

Analysis:
The appellant challenged the ITAT order, arguing that the re-opening of assessment under Section 147 of the Income Tax Act was justified based on the reasonable belief of income escapement, emphasizing no need to prove actual escapement. The appellant criticized ITAT's reliance on past orders and judgments, asserting the legality of re-assessment proceedings initiation. The appellant contended that a non-resident's income received in India is taxable under Section 5(2) and Section 9(1) of the Act deems all income from a business connection in India as accruing in India. The appellant disagreed with ITAT's assessment of transactions between the assessee and LGEIL as at arm's length.

During the proceedings, the Supreme Court's rulings in cases involving foreign AEs were referenced. The Supreme Court's decisions in cases related to Permanent Establishment in India were highlighted, emphasizing the absence of PE in India for certain entities. The Court noted that re-assessment proceedings were initiated against the respondent-assessee based on the presence of PE in India, which contradicted the findings in a previous case involving LGEIL. The Court questioned the inconsistency in the appellant-Revenue's stance on PE in India for different cases.

The Court observed that entertaining the present appeal would essentially challenge the Supreme Court's judgment in a related case, deeming the proceedings infructuous post the Supreme Court's decision. Citing the duty of the Court to act in the interest of justice, including disposing of futile litigation, the Court dismissed the appeal for lacking substantial legal questions. The Court emphasized the need to upload the order promptly and forward copies to the concerned parties for compliance.