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TMI Blog2012 (6) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal on this issue read as below:- "1. That on the facts and circumstances of the case, the order passed by the assessing officer under section 144C(13)/143(3) read with section 147 of the Income-tax Act, 1961 ('the Act') is beyond jurisdiction, bad in law and void-ab-initio. 1.1. That on the facts and circumstances of the case and in law the proceedings under section 147 of the Act having been initiated without there being 'reason to believe' that income of the appellant had escaped assessment, the impugned order is illegal and bad in law. 1.2. That the facts and circumstances of the case and in law, since no addition has been made on the grounds/reasons on the basis of which the reassessment proceedings were initiated, the impugned order is illegal and bad in law." 3. The second issue raised in the present appeal is that the Assessing Officer has erred in computing the income of the assessee at Rs. 11,53,52,883/- as against 'Nil' income returned by the assessee. The relevant grounds are extracted below:- "2. That the assessing officer erred on facts and in law in computing the income of the appellant for the relevant assessment year at Rs. 11,53,52,883/- as aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserving that no specific objection has been raised by the appellant in this regard and in treating the Objection as not pressed." 6. We heard Shri Ajay Vohra, the learned counsel appearing for the assessee, alongwith Shri Rupesh Jain and Mrs. Urmila Ajay Maheswari. Dr. S.Moharana, the learned Commissioner of Income-tax, appeared for the Revenue and argued the case. 7. The assessee is a foreign company. It is registered in The Netherlands. It is engaged in the business of dredging, reclamation and other marine and port related activities. The assessee was awarded a dredging contract by M/s.Gujarat Adani Ltd. The dredging was to be carried out at Port Mundra. After the award of the contract, the assessee-company assigned the contract to its fully owned Indian subsidiary, namely, Van Oord ACZ India Pvt. Ltd. The parties executed an assignment agreement on 18-7-2001. In the light of the above stated assignment agreement, the assessee company undertook to provide coordinating and facilitating services to its Indian subsidiary in carrying out the dredging work. The assessee acted as an inter-face between its Indian subsidiary and other providers of facilities. The assessee brought the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal. 12. The learned Commissioner of Income-tax appearing for the Revenue, on the other hand, relied on the decision of the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500. 13. As already mentioned above, the return was initially processed under section 143(1) and no assessment was completed under section 143(3) of the Act. As pointed out by the DRP, what is required prior to the issue of notice under section 148 is 'reason to believe', but not the established fact of escapement of income. Whether material would conclusively prove escapement of income was not material at the stage of issue of notice. The reopening of the case further was not limited to the only issue which was prima facie noticed on record. The assessing authority seems to have rightfully relied on the judgment of the Hon'ble Gujarat High Court in the case of Praful Chunilal Patel vs. ACIT, 236 ITR 832. 14. The learned counsel has vehemently argued on the proposition that even in case of intimation under section 143(1), an assessment under section 147 could be made only if new materials have come to the knowledge of the Assessing Officer. We ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also the argument of the learned counsel appearing for the assessee that in view of Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands, the above stated reimbursement of expenditure would not be in the nature of fee for technical services. While explaining the relevance of Article 12 of India- Netherlands DTAA, the learned counsel has also placed much reliance on India-US DTAA and India-Portugal DTAA. He has argued that at any stretch of imagination, these reimbursements would not be in the nature of any technical service fees, as the assessee in fact had never rendered any technical services to its Indian subsidiary. What the assessee has arranged for its Indian subsidiary was only the sailing in and the sailing out of dredging vessels and the other connected coordinating activities, for which payments were made by the assessee, which were later reimbursed by its Indian subsidiary. 18. The learned Commissioner of Income-tax appearing for the Revenue, on the other hand, argued that the case is to be viewed with due regard to the cost allocation agreement entered into between the assessee and its Indian subsidiary. The cost allocation agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary to the assessee company was in fact reimbursement of expenditure or not. The case of the assessing authority is that the payments were not reimbursement of expenses. They were payments made for technical services rendered by the assessee company in India in favour of its Indian subsidiary. It is the case of the Assessing Officer that even though the contract was assigned to its Indian subsidiary, the subsidiary has no technical expertise or any other wherewithal to carry out the contract. Therefore, the assessee company itself was providing all the necessary technical services and guidance to its subsidiary to execute the dredging contract. It is because of the above reason that the Assessing Officer has held that the assessee company had rendered technical services in India to its Indian subsidiary and, therefore, the payments made by the subsidiary company have to be treated as fees paid for technical services. 22. We find great force in the arguments of the Revenue and the conclusions arrived at by the Assessing Officer as well as the DRP. The finding of the Assessing Officer has to be considered not only in the light of the contract assignment agreement, but also in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemselves, even though what was paid by the subsidiary company to the assessee is the same amount as reflected in the invoices. Therefore, the argument that what has been paid by the subsidiary to the assessee company was only the amount reflected in the invoices issued by the third parties alone, does not go to support the argument of the assessee company that the payments were only reimbursement of expenditure and there was no element of profit in those amounts. As the assessee has not explained the pricing factor with reference to the services reflected in the invoices issued by the third parties, it is not possible to say that the assessee had not rendered any service to its Indian subsidiary in India. 24. Further, it is to be seen that the original contract was awarded to the assessee company itself. The contract was thereafter assigned to its subsidiary on the basis of an assignment agreement. It is clear from the order of the Assessing Officer that the subsidiary company does not have the technical, organizational and managerial competence to carry out the contract work by itself. Therefore, in fact, the assessee company itself had, to a great extent, execute the contract w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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