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2013 (12) TMI 246 - AT - Income TaxValidity of reopening of assessment u/s 147 - Held that - The assessment was reopened on the reasons recorded in the A.Y. 2005-06 that receipts in pursuance of offshore services contract are in the nature of royalties and in pursuance to the contract for deputation of specialists and offshore training contract are in the nature of fees for technical services - The assessment order of AY 2005 -06 stood merged with the order of the CIT A - The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities - The AO has given appeal effect to the order of the Ld. CIT(A) prior to the date of issuing notice u/s. 148 of the Act - As the entire reopening was based on what happened in assessment year 2005-06 that very basis being struck down by the first appellate authority, there was no reason before the AO to believe that the income has escaped assessment - On the date of the issue of notice u/s. 148 of the Act, the AO was very much in possession of the First appellate order and the very reasons for reopening the assessment did not survive by virtue of the findings of the First appellate authorities which were binding upon the AO - Decided in favour of assessee.
Issues Involved:
1. Reassessment proceedings under Section 147. 2. Validity of the order passed by the DDIT. 3. Taxability of payment received under Offshore Supply Contracts. 4. Levy of interest under Section 234B of the ITA. Issue-wise Detailed Analysis: 1. Reassessment proceedings under Section 147: The appellant company objected to the initiation of reassessment proceedings under Section 148 of the ITA, arguing that the specified jurisdictional conditions were absent. The counsel for the assessee contended that the AO had no reason to believe that income chargeable to tax had escaped assessment, as the reopening was based on findings from the assessment order for A.Y. 2005-06, which were later deleted by the CIT(A). The Tribunal noted that the reopening was based on the reasons discussed in the assessment order for A.Y. 2005-06, which was struck down by the CIT(A). The Tribunal emphasized the principle of judicial discipline, stating that the orders of higher appellate authorities should be followed unreservedly by subordinate authorities. Consequently, the Tribunal concluded that the AO had erred in reopening the assessment, and the reassessment proceedings were set aside. 2. Validity of the order passed by the DDIT: The appellant argued that the order passed by the DDIT was invalid and bad in law, as the DRP issued directions under Section 144C(5) without providing a reasonable opportunity of being heard. The Tribunal did not delve deeply into this issue as it had already quashed the reassessment order, making further discussion on the merits unnecessary. 3. Taxability of payment received under Offshore Supply Contracts: The appellant contended that the DDIT erred in holding that the amount received under the Offshore Supply Contracts was covered by the provisions of Section 44BBB of the ITA and consequently liable to tax in India, even though the supplies were completed outside India. The Tribunal did not address this issue in detail, as the reassessment order itself was quashed, rendering further analysis on this point moot. 4. Levy of interest under Section 234B of the ITA: The appellant objected to the levy of interest under Section 234B, arguing that the entire income was subject to tax deductible at source, and hence, interest under Section 234B was not leviable. Similar to the taxability issue, the Tribunal did not find it necessary to discuss the merits of this contention, as the reassessment order had been set aside. Conclusion: The Tribunal allowed the appeal filed by the assessee, quashing the reassessment order and setting aside the proceedings initiated under Section 147. The Tribunal based its decision on the principle of judicial discipline, recognizing that the very basis for reopening the assessment had been struck down by the CIT(A) for A.Y. 2005-06, and thus, there was no reason to believe that income had escaped assessment. The Tribunal did not delve into the merits of the other issues raised by the appellant, as the reassessment order itself was quashed.
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