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TMI Blog2012 (8) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... MENT Sanjiv Khanna, J Mitsubishi Corporation has filed the present writ petition impugning initiation of re-assessment proceedings under Section 147 of the Income Tax Act, 1961 ('Act', for short) vide notice issued under Section 148 of the Act dated 31.3.2009. The petitioner thereafter had in terms of the decision of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 filed objections to the initiation of re-assessment proceedings which stand dismissed by the impugned order dated 26.11.2009. 2. The assessment year in question is 2002-03 and it is undisputed that the original assessment proceedings were concluded vide assessment order dated 24.3.2006 passed under Section 143(3) of the Act. 3. Ld. counsel for the petitioner before us has raised 6 contentions namely, (1) It is the case of change of opinion as the Assessing Officer in the original assessment proceedings had examined and gone into the question of the income earned by the project office from sales made to Delhi Metro Rail Corporation (hereinafter referred to as DMRC). (2) That the assessee had made full and true disclosure of material facts and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Contention No.3 as we perceive is a part of contention No.2. Our reasons are elucidated in paragraphs below. 6. The reasons recorded for reopening go into about 49 typed pages. However, except for first two pages and the last page, the said reasons are mere reproduction of the assessment order passed by the said Assessing Officer for the assessment year 2005-06. The first two pages portion of the reasons which are germane and discuss the factual matrix pertaining to the assessment year 2002-03 and the last portion of the same reasons read as under : "The assessee is operating in India through liaison office and also through project office. The assessee alongwith Rotem Co., a company incorporated in South Korea and Mitsui Electrical Corporation, a company incorporated in Japan , formed a consortium. The said consortium has been awarded a contract by Delhi Metro Rail Corporation (DMRC) for design, manufacture, supply, testing and commissioning of passengers. It was agreed between parties that the obligations and rights under the Contract are separate for each party and no party will be responsible for the acts of other parties. The consideration for the entire work to be carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Project Office opened in India for the purpose of executing the project of DMRC. In the assessment order for the A.Y.2005-06, the issue was discussed in detail, the relevant extracts of which are reproduced below : ** ** ** In view of the above finding in the assessment year 2005-06 and as the facts for the A.Y. 2002-03 are exactly the same. I have reasons to believe that an income exceeding Rs.100,000/- has escaped assessment. Put up for kind approval of the D.I.T. (International Taxation-I), New Delhi to issue notice u/s 148 of the Act in terms of proviso to section 151(1) of the Act." (Emphasis supplied) 7. For the sake of completeness we may record that the extracts of the assessment order for the assessment year 2005-06, contain a reference to "business connection" and interpretation of the said term, whether the assessee had a permanent establishment in India in respect of sales made to the DMRC, terms of contract entered into between DMRC and the consortium of which the petitioner-assessee was one of the members, terms on which payment was made from time to time referred to as "milestones" etc. 8. A reading of the reasons recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice and the income was computed after making deduction under Section 44C of the Act. 10. We notice a contradiction in the two paragraphs and the observations recorded by the Assessing Officer therein. In the later paragraph the Assessing Officer has mentioned that the sales turnover/income paid in foreign currency by DMRC was included in the income of the "liaison office" and gross profit rate of 2.75% was applied after attributing 50% of the total receipts as attributable to the liaison office, but in the earlier paragraph, the Assessing Officer has stated that sales be made to DMRC by the "project office" had not been offered to taxation. Thus in the later paragraph of the reasons it is stated that payment made by DMRC in foreign currency was taxed in the original order after attributing 50% of the total receipts as taxable in India and GP rate of 2.75% was applied. The question of "liaison office/project office" is examined below. 11. Ld. counsel for the petitioner has rightly drawn our attention to the original assessment order under Section 143(3) dated 24.3.2006. The said assessment order is fairly detailed and goes into several aspects including the question of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The original assessment order thereafter notices that the assessee had furnished details of turnover and ledger of transactions with Indian clients. The Indian turnover shows that the figure was submitted separately for the purpose of taxation in India . It also refers to submissions filed by the assessee dated 2.3.2006 where the petitioner had furnished several details. The Assessing Officer records that the petitioner had accepted that it earns profits from the Indian transactions of the Mitsubishi Corporation, Japan at G P rate of 2.75% of the turnover attributable to India . The Assessing Officer computed the taxable income of the assessee as Rs. 23,17,75,386/-. 14. Ld. counsel for the revenue has relied on certain observations made in the original assessment order. We deem it appropriate to reproduce the last portion of the order : "The above submission of the assessee with regard to the turnover and determination of profit is considered. The assessee has furnished its ledger of transaction with Indian clients. The assessee also filed the complete ledger of all the trading done by the assessee company in its individual capacity and culled out the figures pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income from project office was taken as returned. We are afraid, the counsel is reading the said observations in isolation without taking into consideration and without reading the earlier portion of the assessment order. The cumulative effect of the assessment order is that the Assessing Officer had treated the project office and income from sales made to DMRC as clearly taxable in India. It was held that the project office constitutes permanent establishment in India. The question, what portion of the payment made by the DMRC in foreign exchange aboard should be attributed to income earned in India by the project office/permanent establishment was examined. The Assessing Officer held that gross profit rate of 2.75% should be treated as the profit earned and out of this expenses were allowed. These expenses related to the liaison office and payment of salaries. The Assessing Officer attributed income to Indian operations at 50% and accordingly after allowing head office expenses under Section 44C an amount of Rs. 23,17,75,386/- was held to be taxable in India . This becomes very clear if we refer to the annexure to the assessment order (annexure P2 for the writ petition) which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a but has held that the entire turnover is taxable in India . 19. It is apparent and clear from the factual narration mentioned above that the Assessing officer during the course of the original assessment proceedings had gone into all aspects now mentioned in the reasons to believe for initiation of re-assessment proceedings. On the basis of his understanding and appreciation of law, assessment was framed on a figure of Rs. 22,36,96,446/-. The Assessing Officer during the course of the original assessment proceedings felt that GP rate of 2.75% was justified and should be accepted. He also felt that the entire turnover should not be taken for computing the profit attributed to India and 50% of the turnover should be attributed to the Indian permanent establishment in form of the project office. 20. This is the basic difference between the original assessment orders for the assessment year 2002-03 and 2005-06 which forms the foundation for the reasons to believe for reopening for the Assessment Year 2002-03. 21. It is well settled that Assessing Officer cannot reopen concluded assessment under Sections 147 and 148 of the Act in a case of change of opinion. The Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in section 147.-A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reason to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." For the aforesaid reasons, we see no merit in these civil appeals filed by the Department; hence, dismissed with no order as to costs." 22. We may also notice that the proviso to Section 147 of the Act is fully applicable as t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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