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2023 (11) TMI 495 - AT - Income TaxReopening of assessment u/s 147 - assessee in default for non-deduction of tax while issuing FCCB to the non-resident assessee company - reasons to believe - HELD THAT - We note that the essential condition prescribed under the Act for reopening the assessment u/s 147 of the Act AO is that he has to firstly record his reasons to believe, escapement of income . It is well settled that the reason to believe postulates a foundation based an information and belief based on reason. In the present case CIT(A) who was pleased to delete the direction of AO (TDS) to deduct the tax at source on the redemption premium. And this action of the Ld. CIT(A) has been upheld by the Tribunal (Pune) 2023 (1) TMI 1312 - ITAT PUNE by holding that the income has not arisen in India in the hands of the recipient/non-resident and therefore there was no obligation on the part of the payer/M/s. Bharat Forge Ltd. to deduct tax at source on the payment of interest (redemption premium) as held by the Hon ble Supreme Court in the case of GE India Technology Cen. (P.) Ltd. 2010 (9) TMI 7 - SUPREME COURT In the light of the aforesaid action of the Tribunal in the case of payer/M/s. Bharat Forge Ltd., the information given by the AO (TDS) of M/s. Bharat Forge Ltd. which was the foundation on which was the AO of assessee has re-opened the assessment of assessee is no longer existing being legally incorrect. Therefore, the material/information on which AO have re-opened the assessment having been removed, the action of AO to have issued notice of re-opening of assessment u/s 148 of the Act itself fails. We may rely on the legal Maxim Sublato Fundamento credit opus meaning in case foundation is removed, the super--structure falls. In the case of Badarinath Vs. Tamilnadu 2000 (9) TMI 1044 - SUPREME COURT has held that once the basis of proceeding is gone, all consequential order and acts would fall on the ground automatically which is applicable to judicial and quasi--judicial proceedings. Decided in favour of assessee.
Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income Tax Act, 1961. 2. Validity of the Assessing Officer's (AO) reasons to believe escapement of income. 3. Impact of the Tribunal's decision in the case of Bharat Forge Ltd. on the reopening of the assessment. Summary: Issue 1: Legality of Reopening the Assessment under Section 147 The assessee challenged the reopening of the assessment under Section 147 of the Income Tax Act, 1961, arguing that the AO did not satisfy the essential conditions prescribed under the Act, making the action ab-initio void. Issue 2: Validity of AO's Reasons to Believe Escapement of Income The AO reopened the assessment based on information that the assessee, Citicorp Trustee Company Ltd., had not filed a return of income for AY 2014-15 despite receiving funds amounting to Rs. 42,84,48,114/-. The AO believed that this amount was income chargeable to tax that had escaped assessment due to the assessee's failure to disclose material facts. Issue 3: Impact of Tribunal's Decision in Bharat Forge Ltd. The Tribunal (Pune) held that M/s. Bharat Forge Ltd. was not an assessee in default for non-deduction of TDS on the redemption premium of Foreign Currency Convertible Bonds (FCCBs). The Tribunal concluded that the interest income did not accrue or arise in India, thereby negating the AO's basis for reopening the assessment of Citicorp Trustee Company Ltd. Comprehensive Details: Issue 1: Legality of Reopening the Assessment under Section 147 The assessee contended that the AO did not meet the condition-precedent for reopening the assessment, as the AO's action was based on incorrect information and was thus without jurisdiction. Issue 2: Validity of AO's Reasons to Believe Escapement of Income The AO's reasons for reopening the assessment were based on the belief that the interest on FCCBs accrued in India and that the assessee had taxable income that was not disclosed. However, the assessee argued that it acted only as a trustee and that any income from the bonds would be taxable in the hands of the ultimate beneficiaries, not the trustee. Issue 3: Impact of Tribunal's Decision in Bharat Forge Ltd. The Tribunal's decision in the case of Bharat Forge Ltd. invalidated the AO's basis for reopening the assessment. The Tribunal held that the interest paid by Bharat Forge Ltd. on FCCBs was not taxable in India, as the funds were used for investments outside India. Consequently, the AO's "reason to believe" that income had escaped assessment was based on legally unsustainable grounds. Conclusion: The Tribunal quashed the AO's action to reopen the assessment, holding that the foundational facts for reopening were legally incorrect. The appeal of the assessee was allowed, and the other grounds raised became academic in nature. The order was pronounced on 21/08/2023.
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