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2012 (4) TMI 193 - AT - Income TaxTaxability in India of income earned in a foreign countries covered under DTAA, by the assessee who is a resident of India - assessee engaged in providing full range of consultancy, design and engineering services in all fields of telecommunication in India as well as abroad Held that - If, in the DTAA, an item of income is may be taxed in state of source and nothing is mentioned about taxing right of state of residence in convention itself, then state of residence is not precluded from taxing such income and can tax such income using inherent right of state of residence to tax such global income of its resident. Only in the case of phrase shall be taxed only used, then only the state of residence is precluded from taxing it. In such cases, where the phrase may be taxed used, the state of residence has been given its inherent right to tax. Also, in case of CIT vs PVAL Kulandagan Chettiar (2007 - TMI - 40400 - Supreme Court) it was held that state of residence has right to tax global income of its resident. Since, Residence based taxation is followed in India rendering residents to be taxed on their global income, and non-residents to be taxed only on income sourced inside the country. Therefore, assessee is liable to be taxed on its global income Decided against the assessee. Validity of reopening of assessment beyond 4 years from the end of relevant A.Y excessive deduction u/s 80HHC & 80HHB assessee contending change of opinion Held that - As per Explanation (2)(c)(iv) to section 147, if excessive loss, depreciation allowance or any other allowance under the act has been computed, it shall be deemed to be an escapement of income. In present case, indirect expenses attributable to the exported trading goods were understated. There was no discussion about deduction u/s 80HHC & 80HHB in assessment order and even there was no working of attributable indirect expenses in Form No. 10CCAC which was vital element for computation of deduction available to the assessee which has not been furnished by the assessee. Therefore, there was a reasonable belief that income has escaped assessment. Further, existence of belief can be challenged by assessee but not the sufficiency of the reasons to belief Decided against the assessee. Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection (2) of section 148. Deduction u/s 80HHB - dis-allowance of Rs 8 lacs - Claim of Rs 32.08 crores made and reserves made upto Rs 32 crores only Held that - Since there is shortfall in reserves , hence conditions laid down in Section 80HHB(3)(ii) are not fulfilled. Thus, dis-allowance is upheld Decided against the assessee. Dis-allowance u/s 80HHC - assessee contending that it is maintaining separate books of account for export business, therefore, indirect expenses relatable to the export goods need not to be worked out as per provisions of section 80HHC(3) Held that - Administrative expenses will have to be apportioned in the ratio of export turnover to total turnover which have relations with the export business Decided against the assessee.
Issues Involved:
1. Reopening of assessment under Section 147/148 of the Income-tax Act. 2. Extension of scope of inquiry during reassessment. 3. Disallowance of deduction under Section 80HHB. 4. Disallowance of deduction under Section 80HHC. 5. Taxability in India of income earned in foreign countries covered under DTAA. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147/148: The assessee challenged the reopening of assessment for AY 2000-01, arguing that all primary facts were disclosed during the original assessment and that the reopening was based on a mere change of opinion. The Tribunal noted that the reopening was justified under Explanation 2(c)(iv) to Section 147, which deems excessive allowance as escapement of income. The Tribunal upheld the reopening, citing that the original assessment did not discuss deductions under Sections 80HHC and 80HHB and that the assessee had not provided all necessary details. The Tribunal relied on various case laws, including Indo-Aden Salt Manufacturing and Trading Co. v. CIT and ITO v. Lakhmani Mewal Das, to support the reopening. 2. Extension of Scope of Inquiry During Reassessment: The assessee argued that the scope of inquiry during reassessment was improperly extended to issues not covered in the reassessment notice. The Tribunal dismissed this ground, referring to Explanation 3 to Section 147, which allows the Assessing Officer to assess any issue that comes to notice during reassessment proceedings, even if not included in the initial notice. The Tribunal cited the Bombay High Court's decision in CIT v. Jet Airways (I) Ltd. to support this view. 3. Disallowance of Deduction under Section 80HHB: The assessee claimed a deduction of Rs. 32,08,02,147 under Section 80HHB but had credited only Rs. 32 crores to the foreign project reserve account, resulting in a shortfall. The Tribunal noted that the deduction must be the lesser of 50% of the profit, the amount credited to the reserve, or the amount brought into India. The Tribunal dismissed the assessee's argument that the shortfall made good in subsequent years should be considered, citing that each assessment year is independent. The Tribunal upheld the disallowance, referencing the provisions of Section 80HHB and case laws like Continental Construction Co. Ltd. v. UOI. 4. Disallowance of Deduction under Section 80HHC: The assessee contended that indirect expenses related to export goods should not be apportioned as per Section 80HHC(3) since separate books were maintained. The Tribunal found no merit in this argument, noting that the assessee did not provide sufficient evidence of maintaining separate books. The Tribunal upheld the Assessing Officer's apportionment of indirect expenses as per Explanation (e) to Section 80HHC(3), referencing case laws like CIT v. General Sales Ltd. 5. Taxability in India of Income Earned in Foreign Countries Covered under DTAA: The assessee argued that income from projects in Oman, Mauritius, Netherlands, and Tanzania should not be taxed in India as per the respective DTAAs. The Tribunal held that India, as the state of residence, retains the inherent right to tax global income unless explicitly waived in the DTAA. The Tribunal distinguished the case from CIT v. P.V.A.L. Kulandagan Chettiar, noting that the phrase "may be taxed" in Article 7 of the DTAA does not preclude India from taxing such income. The Tribunal dismissed the assessee's reliance on various case laws, including CIT v. S.R.M. Firms and CIT v. Essar Oil, and upheld the taxability of the foreign income in India, allowing for credit of taxes paid in the source countries. Conclusion: All grounds of appeal raised by the assessee were dismissed, and the Tribunal upheld the orders of the CIT (Appeals) on all issues.
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