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TMI Blog2012 (2) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 24-1-2012 - DR.D.Y.CHANDRACHUD M.S.SANKLECHA, JJ. Mr.Percy J.Parrdiwala, Senior Advocate with Mr.Prakash Shah and Mr.Jas Sanghavi i/b. PDS Legal for the Petitioner. Mr.Vimal Gupta for the Respondents. ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) : Rule; with the consent of Counsel for the parties returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal. 2. The challenge in these proceedings is to a notice that was issued to the Petitioner on 22 March 2011 under Section 148 of the Income Tax Act, 1961, by which an assessment for Assessment Year 200405 is sought to be reopened. The Petitioner is a subsidiary of a Dutch Company, Monitor Group Holdings Netherlands B.V., which in turn is a wholly owned subsidiary of Monitor Company Group L.P. United States. The U.S. based principal is an international strategy consulting firm. During the course of Assessment Year 200405, the Petitioner made a payment of Rs. 1.56 crores to its U.S. based principal. This, according to the Petitioner, was a reimbursement for costs incurred for providing Group Management, Finance and Benefits, Training a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of advice received from ultimate holding Company. Besides, there was also a statement to the effect that the Petitioner was in the process of filing an application before the Income Tax Authority for not withholding tax on expenses allocated by a Group Company amounting to Rs. 1.56 crores. However, it was stated that income tax provision for the year has been made by considering it as an inadmissible expenses. In the Tax Audit Report which was furnished together with the income tax return, the Petitioner disclosed in Item 17 amounts debited to the profit and loss account inter alia as being inadmissible under Section 40(a). Against Item 17(f) was a reflection of the expenses allocated by a Group Company of Rs.1.56 crores. However, there was a statement to the effect that the Petitioner had filed an application before the Income Tax Authorities for not withholding tax on those expenses. 3. On 15 March 2005, an order was passed on the application made by the Petitioner under Section 195(2) by which the Petitioner was authorised to remit a total sum of Rs. 1.74 crores to the U.S. Company without deducting withholding tax on the amount which represented reimbursement of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer accepted the business income as computed in the revised return of income. 6. A notice has been issued to the Petitioner under Section 148 on 22 March 2011. The following reasons have been disclosed to the Petitioner for reopening the assessment: It is evident that the assessee had made application for nondeduction of TDS after the books for the period under consideration, i.e. A.Y. 200405 had been finalized and the amount of Rs.1.56 crore had already been credited to the account of Monitor Company. It has been clarified vide Circular 774 of 1999 that, any certificate u/s.197 is valid only for payments or credit made after the date on which certificate has been issued. As the assessee had already credited the amount to the account of the company in its books, the said certificate for nondeduction of tax is not valid in respect of payment of Rs. 1.56 crore, as the certificate was issued after the amount of Rs.1.56 crore had been credited in the books. Further, the amount mentioned in the certificate also does not tally with the amount credited/paid by the assessee for the period under consideration for which the certificate has been issued. The Petitioner submitted ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a valid basis to reopen the assessment even beyond a period of four years. 9. The rival submissions now fall for determination. 10. The basis on which the assessment for Assessment Year 200405 is sought to be reopened is set out in the reasons which were disclosed to the Petitioner on 22 March 2011. The reasons set out that the Petitioner made an application for nondeduction of TDS after the books for Assessment Year 200405 had been finalized and the amount of Rs.1.56 crores had been credited to the account of the U.S. Company. According to the Assessing Officer, under Circular 774/99, a certificate under Section 197 is valid only for payment or credits made after the date on which a certificate had been issued. Since the Petitioner had already credited the amount in its books of account, the Assessing Officer has opined that the certificate for nondeduction of tax is not valid in respect of the payment of Rs.1.56 crores. Moreover, it has been stated that the amount mentioned in the certificate does not tally with the amount credited or paid by the Petitioner. Now, reading the reasons as they stand, it is evident that there is not even an allegation to the effect that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Petitioner and the foreign principal, a copy of which was placed on record; (iv) The allocation of expenses was carried out in accordance with the methodology which was placed on record; (v) An order had been passed under Section 195(2) by the Assessing Officer. There was, therefore, in these circumstances, a full disclosure of all primary and material facts necessary for the assessment. As we have noted earlier, the Assessing Officer has not even indicated in the reasons that have been recorded that there was any failure to disclose fully and truly all material facts. But quite apart from the facts and as indicated above, we find merit in the contention of the Petitioner that there was a full and true disclosure of all necessary material for assessment for Assessment Year 200405. 11, The assessment has been sought to be reopened purely on the basis that (i) A certificate was issued to the Petitioner under Section 197; (ii) That by virtue of Circular 774/99 a certificate under Section 197 would be valid only for payment or credit made after the issuance of the certificate; and (iii) Since the Petitioner had already credited an amount in its books, the certificate was not va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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