2018 (9) TMI 968 - HC - Income Tax

Reopening of assessment - non-reporting of the receipt of income on account of royalty - permanent establishment and attribution of income to the permanent establishment - validity of reason to believe - Held that - A perusal of the figures in the statement furnished in respect of the income as reported in the original return of income and the return furnished u/s 148 leaves no doubt that there is huge difference and in this context it cannot be said that the notice u/s 148 is not supported by any valid reason or reasons proposing to re-open the assessment for the assessment years between 2004-05 and 2009-10. It is only after re-opening the matter and verification of the re-conciliation of royalty and FTS income as declared in the return u/s 147 with the TDS details of SIEL, the AO recorded that the Royalty/FTS income as offered to tax in such returns was acceptable. It cannot be said that there is no escapement of income from computation in the original returns of income filed by the assessee for the Assessment Years 2004-05 to 2009-10. It is only because the SIEL affected TDS on such Royalty, FTS income, whose benefit was availed by the assessee in the revised returns that no further tax liability was incurred though income escaping assessment got taxed in fresh proceedings. This aspect of non-reporting of the receipt of income on account of royalty is a valid ground for the Ld. AO to propose the reopening of the assessment, and it cannot be said that there was no escapement of income merely because tax was deducted at source on such income. When it is open under Explanation 3 to section 147 for the AO to reassess the income on any issue which newly comes to his notice subsequent to the issuance of notice under section 148 of the Act, it cannot be said that mere wrong mentioning of the provision of law relating to the other issues in the reasons recorded would vitiate the proceedings. We, therefore, reject the contention of the assessee that the reopening proceedings are bad under law. - Decided against assessee

Issues Involved:
1. Validity of initiation of proceedings under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Non-disclosure of income earned by way of royalty and fee for technical services.
3. Impact of tax deducted at source on the assessment.
4. Relevance of the judgment in Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 147/148:
The appeals challenge the findings of the Tribunal upholding the initiation of proceedings by the Assessing Officer under Section 147 read with Section 148 of the Income Tax Act, 1961. The "reasons to believe" recorded by the Assessing Officer for the Assessment Year 2008-09 were examined, which indicated that a survey conducted on 24/06/2010 revealed that the appellant's Indian subsidiary had not paid any royalty for the use of the "Samsung" brand name, leading to the belief that income in the form of royalty had escaped assessment. The appellant accepted that the survey was conducted and that the Indian subsidiary had substantial turnover, but disputed the initiation of proceedings based on the assertion that the returns had been filed.

2. Non-Disclosure of Income Earned by Way of Royalty and Fee for Technical Services:
The appellant admitted that the returns filed by the branch office under the name "Samsung Electronics Co. Ltd.- India Software Operations" did not include income earned by way of fee for technical services and royalty from the Indian subsidiary. The Tribunal noted that the appellant had filed returns in response to the notices under Section 147/148, disclosing new and additional sources of income, which had not been included in the original returns. This non-disclosure was material and relevant, leading to the conclusion that the original returns were incorrect.

3. Impact of Tax Deducted at Source on the Assessment:
The contention that tax had been deducted at source on royalty and fee for technical services was dismissed as irrelevant to the issue of non-disclosure of income. The Tribunal observed that the deduction of tax at source and the failure to disclose taxable income are distinct aspects. The Assessing Officer objectively and reasonably estimated the escapement of income based on the turnover and sales of the Indian subsidiary. The Tribunal upheld the validity of the reopening of assessments, noting that there was a significant difference between the income reported in the original returns and the returns filed under Section 148.

4. Relevance of the Judgment in Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax:
The appellant argued that the judgment in Ranbaxy Laboratories Ltd. Vs. Commissioner of Income Tax (2011) 336 ITR 136 was applicable. However, the Tribunal and the court rejected this argument, stating that the appellant had declared additional income and accepted their failure to disclose earned income by way of royalty and fee for technical services in response to the notice for re-assessment. This acceptance rendered the Ranbaxy judgment inapplicable.

Conclusion:
The High Court dismissed the appeals, agreeing with the Tribunal's findings that the initiation of reassessment proceedings under Section 147/148 was valid. The court emphasized that the appellant's failure to disclose income earned by way of royalty and fee for technical services in the original returns justified the reopening of assessments. The deduction of tax at source did not negate the non-disclosure of income, and the significant difference between the income reported in the original returns and the returns filed under Section 148 supported the Assessing Officer's "reasons to believe." The court clarified that the dismissal of the appeals would not affect any appeals that may have been preferred by the Revenue for the same years.

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