2015 (4) TMI 845 - HC - Income Tax

Reopening of assessment - non stating any failure on the part of the assessee to disclose complete and full facts/concealment of facts is bad as submitted by assessee - Held that - It is in respect of items mentioned at serial no. 2 i.e. payments made to L.G. Electronics, Korea, there is no disclosure with regards to non-resident company having P.E. In India as has been found after survey and as affirmed up to the High Court. We are satisfied that because of non-disclosure of the fact qua the L.G. Electronics, Korea having a P.E. In India, there has not been fully and truly complete disclosure of the material facts which could have led the Assessing Officer to examine as to whether tax was payable on the remittance to the non-resident Indian Company or not. In our opinion in the reasons disclosed for initiating the re-assessment proceedings in the facts of the case, as noticed above, no fault can be found as the assessee had failed to disclosed fully and truly the complete facts in respect of L.G. Electronics, Korea having a P.E. In India to which payments have been made. Thus there is a nexus between the reasons recorded and the belief that income had escaped assessment because of fully and truly information having not been furnished by the assessee. The Assessing Officer has given valid reasons to believe that income had escaped assessment. No illegality in the notice issued under Section 148 - Decided against assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with the requirements of Section 147 of the Income Tax Act, 1961.
3. Alleged failure of the assessee to disclose fully and truly all material facts.
4. Applicability of the Double Taxation Avoidance Agreement (DTAA) between India and Korea.
5. Consequences of non-deduction of tax at source under Section 195 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 28.03.2013 issued by the Assistant Commissioner of Income Tax for the Assessment Year 2006-07. The notice was issued under Section 148 of the Income Tax Act, 1961, indicating that the officer had reasons to believe that the income chargeable to tax had escaped assessment. The court examined whether the notice was issued based on valid reasons and found that the reasons recorded for initiating re-assessment proceedings were justified.

2. Compliance with the requirements of Section 147 of the Income Tax Act, 1961:
The petitioner argued that the basic requirements of Section 147 were not satisfied, particularly the condition that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court noted that the legal principle for reopening assessments beyond four years requires two conditions: the Assessing Officer must have reasons to believe that income has escaped assessment, and such under-assessment must be due to the assessee's failure to disclose material facts. The court found that these conditions were met in this case.

3. Alleged failure of the assessee to disclose fully and truly all material facts:
The petitioner contended that all relevant facts were disclosed during the original assessment, and there was no failure to disclose material facts. However, the court observed that the petitioner did not disclose the fact that L.G. Electronics Korea had a Permanent Establishment (P.E.) in India, which was material for determining tax liability. The court concluded that there was a failure to make a true and full disclosure of material facts, justifying the re-assessment proceedings.

4. Applicability of the Double Taxation Avoidance Agreement (DTAA) between India and Korea:
The petitioner argued that the DTAA between India and Korea should prevail over the provisions of Section 40(a)(i) of the Income Tax Act, 1961. The court noted that this issue was being raised for the first time and could be agitated during the re-assessment proceedings. The court left this issue open for the Assessing Officer to examine during the re-assessment process.

5. Consequences of non-deduction of tax at source under Section 195 of the Income Tax Act, 1961:
The department argued that the petitioner failed to deduct tax at source when making payments to the Korean company, which had a P.E. in India. This failure led to two consequences: recovery of tax not deducted and disallowance of corresponding expenditure under Section 40(a)(i). The court found that the reasons recorded for re-assessment were valid and that the petitioner had not fully disclosed the material facts regarding the P.E. in India.

Conclusion:
The court dismissed the writ petition, finding no illegality in the notice issued under Section 148 of the Income Tax Act, 1961, and the initiation of re-assessment proceedings under Section 147. The court held that the petitioner failed to disclose fully and truly all material facts, justifying the re-assessment. The issue of the DTAA's applicability was left open for consideration during the re-assessment proceedings.