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TMI Blog2012 (12) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... 03-04 - held that:- For the assessment years 2002-03 and 2003-04, the agreement between the petitioner-assessee and Quest is not in the assessment records. - the petitioner had denied any contract or business relationship between them and Quest. This is in spite of the fact that they had an agreement, and it is an accepted and admitted position that they had entered into an agreement with Quest dated 1st February, 2001. The aforesaid fact was clearly concealed, and incorrect factual information was circulated to the Assessing Officer. - Reassessment proceedings for the assessment years 2002-03 and 2003-04 sustained. - W.P.(C)14076/2009, 14077/2009, 14085/2009 & 14096/2009 - - - Dated:- 4-12-2012 - MR. SANJIV KHANNA AND MR. R.V. EASWAR JJ. Petitioner: Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. Respondent: Mr. Sanjeev Sabharwal, Sr. Standing Counsel Mr. Puneet Gupta, Standing Counsel. SANJIV KHANNA, J.: The present judgment will decide the challenge to the reassessment proceedings initiated against the petitioner Meinhardt Singapore Pte Ltd. for the assessment years 2002-03 to 2005-06 vide reasons recorded on 25th-26th March, 2009. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.1,16,76,611/- 2 2002-03 Rs.2,38,07,150/- 3 2003-04 Rs.1,61,24,993/- 4 2004-05 Rs.2,46,36,754/- 5 2005-06 Rs.1,32,26,105/- Copies of Form 16A issued by the NHAI to the Quest International Consultants have also been placed on record. 4.2 During the assessment proceedings for the A.Y. 2006-07, the taxability of payments, received by the Quest International directly from the NHAI, in the hands of M/s Meinhardt (Singapore) Pte. Ltd. was examined. It was seen that the NHAI entered into a contract with the assessee in respect of certain technical services to be provided by latter for its Allahabad project. There is no agreement/contract between the NHAI and M/s Quest International. 4.3 At page 14 of the contract between NHAI and the assessee, Sub-consultant is defined as any entity to which the Consultants subcontract any part of the services in accordance with GC 3.7, as quoted above. The purpose for including, in clause 3.7, provision for prior approval of NHAI before appointing Key Personnel and entering into any sub-contract was merely to ensure quality control. The ultimate respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually receives the payments based on assessee s authorization. During the assessment proceedings, the assessee itself submitted copies of bills raised by Quest International, duly countersigned by the assessee. It clearly shows that for the Client, i.e. the NHAI it is the assessee which matters, and not its sub-consultants. It expects proper fulfillment of contractual obligations from the assessee and releases payments only on assessee s authorization. 4.7 Moreover, in clause 6.4(GC) it is the Consultants i.e. the assessee which is saddled with the responsibility of fulfilling various procedural requirements in order to make a claim of payments due. Nowhere the contract recognizes rights of the Sub-consultants i.e. Quest International of getting paid. As per clause 6.4 (e), all the payments were to be made by the Client in designated accounts, which are listed in Special condition (SC) 6.4 (e). The list indeed includes a local account of Quest International and the Ld. A.R. during the assessment proceedings placed enormous reliance on this fact. However, if one reads all the clauses related to payments in unison (GC 5.5 and 6-page 29 to 32-the relevant extracts of which are repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee receives its due. Had there been an independent contract between the NHAI and Quest International in respect of payment to be received by Quest International, there was absolutely no need to insert clause 7 in the contract. 4.11 The contract between the NHAI and the assessee was entered into on January 30, 2001. According to the assessee s own admission the services rendered are in the nature of Technical Services under the relevant provisions of Income-tax Act, 1961 and the relevant DTAA. The assessee itself has admitted that the receipts in respect of NHAI Allahabad project are taxable as FTS under Section 44D read with section 115A of the Act on gross basis @ 20%. Under these circumstances, when there was no extra benefit of expenses available to the assessee, the claim of payment of a substantial amount of receipt directly in the hands of the Sub- consultants is nothing but a ploy to avoid payment of taxes by the assessee. Rightfully, entire receipts arising on account of the said contract are taxable in the hands of the assessee on gross basis @ 20% under section 44D read with section 115A of the Act. 4.12 There can be no denial to the fact that Contract was awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectus of the case, the conclusion can t escape that the ploy of direct payments to Quest International was a fa ade created for the purpose of taxation, ex-consequent and therefore, veil has to be lifted to tax the correct amount of receipt as FTS under section 44D read with 115A of the Act @ 20% on gross basis. 4.16. During the year, the Quest International received an amount of Rs.1,16,76,611/- directly from the NHAI on behalf of the assessee. As discussed above, this amount should have been taxed in the hands of the assessee. Therefore, I have reasons to believe that an amount of Rs.1,16,76,611/- has escaped assessment. Approval of the DIT (International Taxation-I), New Delhi is solicited in terms of the proviso to section 151(1) of the Act. Deputy Director of Income Tax Intl. Tax. Circle 3(1), New Delhi Dated:26-03-2009" 3. We may note that the proceedings for the assessment year 2002-03 and 2003-04 are beyond the period of four years and, therefore, the first proviso to Section 147 of the Income Tax Act, 1961 (Act, for short) is applicable. The notices for these two assessment years have been issued after obtaining approval under the proviso to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to come to a conclusion that the AO while making the assessment orders for the A.Ys. 1981-82 and 1982-1983 recollected Note 16 to its Accounts for year ending 31.12.1982 included in the return of income for the A.Y. 1983-1984." 6. At the same time, we are cautious of the fact that if the issue in question permeates, is a germane and live issue for all the assessment years, it can be overlapping. There can be cases when an issue/question may have been examined even when the Assessing Officer had not raised a written query etc. especially when assessment proceedings for two or more years are pending or have been decided by the same Assessing Officer or the question/issue was raised/examined in the immediately preceding year. In spite of the said position, for the reasons set out below, we have reached two different conclusions by applying the legal principles applicable to Section 147/148 of the Act. 7. We have already set out in detail the reasons for reopening, for AY 2002-03. The petitioner, as noted in the said reasons, is a Singapore based company having a branch office in India, and during the assessments years in question, it had provided technical consultancy services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner and Quest. He has quoted, examined and interpreted the said agreements to justify initiation of the reassessment proceedings. For the assessment year 2006-07, the Assessing Officer has held in the assessment proceedings that the amounts received by Quest from NHAI are taxable in the hands of the assessee. It is apparent that the assessment order for the assessment year 2006-07 became the starting point for initiation of the reassessment proceedings. 9. For the sake of convenience, we will first deal with W.P.(C) Nos.14085/2009 and 14076/2009, which relate to the assessment years 2004-05 and 2005-06. As observed above, as far as the assessment years 2004-05 and 2005-06 are concerned, the petitioner s case falls in the category of ‗change of opinion . It is an accepted and admitted position that in the assessment year 2004-05, both, the agreement between the petitioner and NHAI, and the agreement between the petitioner and Quest, are available on the records of the Assessing Officer. Therefore, the Assessing Officer was aware and had knowledge of the said agreements. From the reasons quoted above, it is clear that the Assessing Officer has referred to the claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational is enclosed which establishes the fact that staff at Delhi are not attending any work for NHAI project. These are two different staffs having different duties and nature of work. TDS of Rs.507223/- has been deducted and TDS returns have been filed by the company. The amount so paid has been debited to Profit Loss account and has been claimed as deduction being an expenditure incurred or execution of contracts entered after April 2003. 2. .................... 3. Copy of NHA project, Allahabad is enclosed for your ready reference and record. From this agreement with the National Highway Authority of India, you will observe that the provisions of sub-consultancy in the name of Quest International Consultants is given under the organization chart at page no.54 of the contract. The organization chart clearly defines and establish the fact that the Quest International has been appointed as sub-consultant for undertaking day to day work as directed by NHAI. 4. ...................... 5. Every month company is raising professional bill in Indian currency. As informed to your earlier that Quest International has been appointed by NHAI as sub-consultant for undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are made What were the such expenses in F.Y. 2000-01, 2001-02 also considering the fact that the B.O. didn t have any project other than NHAI in earlier years it can be said that these expenses were incurred in connection with NHAI project Allahabad due to this please also explain as to why an expense of Rs.3226621/- be reduced from the current year expenditure also treating the same as incurred for NHAI Allahabad project. 4. Please explain on what a/c the advance to Quest International and Arch Consultancy be made since when the advance was made submit the copy of documents in this regard." 13. Similarly, the order sheet entry dated 7th November, 2006 records:- "2. Why the total receipt from NHAI in respect of Allahabad project in Indian currency be treated as a receipt and taxed as per provision of Section 44D read with 115A of the Act". 14. The letters/responses of the petitioner, when read with order sheet entry dated 30th December, 2005 and questionnaire dated 20 November, 2006, gives a clear indication that the Assessing Officer was aware that payments had been made by NHAI to Quest. Secondly, both the agreement between NHAI and Quest, as well as the agreement betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r tax under section 115A read with section 44DA as the contract was signed before 1st April 2003." 18. It is the contention of the petitioner that the contract with Quest dated 1st February, 2001 was furnished and, therefore, the query was raised. We agree as it is obvious and it would be incongruous to hold to the contrary. That the contract dated 1st February, 2001 is on record in the immediate preceding year 2004-05 is accepted. The answer given was pertinent and specific. It is indicative of the application of mind on the factual matrix. 19. Consequently, the respondent s claim that these letters are not on record, and therefore should not be taken into consideration, cannot be accepted. This cannot be a ground to reject, and to not take into consideration, the letters. Record maintenance of the respondents leaves much to be desired. Departmental files and records are neither page numbered nor in seriatim. There is no concept of a filing counter and issuance of a proper receipt. The petitioner-assessee has taken a categorical stand that these letters were written to the Assessing Officer. The respondents cannot deny receipt of the said letters merely on the basis that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. 6. We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain preconditions and if the concept of change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. 7. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in Section 147 of the Act. However, on receipt of representations from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 12. Please confirm whether any supplied were made by you or any of your associate entity to any concern in India. If yes, give details thereof." "With reference to your notice dated 27.12.2004 and as desired by you please find enclosed herewith the followings:- a) x x x x x x b) x x x x x x c) x x x x x x d) M/s Quest International Consultant is a sub Consultant of M/s NHAI and the company is not having any business relationship with them. e) It is clarified that the Company has not made any suppliers in India and further it may be inform to you that the Company does not have any other business Associates in India." 23. Another query in the aforesaid letter, dated 27.12.2004, asked for a copy of the contract between the petitioner and NHAI, and with any other entity for whom services were rendered by the petitioner for utilisation in India. In the response, dated 24.01.2005, a copy of the agreement between the petitioner and NHAI was enclosed, and it was further clarified that the petitioner had not entered into any contract with any other organization/company for rendering professional services in India. 24. It is clear from the aforesaid reply that the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts." 25. The condition of the first proviso is also squarely satisfied, as the petitioner had failed to fully and truly disclose such material facts. In the case of Usha International (supra), the term 'material fact' has been elucidated and explained as under:- "The expression material facts means those facts which if taken into account would have an adverse affect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment." 26. We may also refer to the decision in the case of Calcutta Discount Company Ltd. Vs. ITO (1961) 41 ITR 191, wherein the term 'material fact' was examined and it was held:- "The words used are 'omission or failure to disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement between them and Quest and the Assessing Officer did not go into the said question and examine the same. 28. Learned counsel for the petitioner in these circumstances submitted that the reasons to believe recorded by the Assessing Officer on 26.03.2009 do not record or state that the agreement between the petitioner and Quest was not on record, and that there was failure on the part of the assessee to fully and truly disclose the material facts. We feel that the contention, though attractive, must fail for various reasons. Whether or not the agreement between the petitioner and Quest was available with the Assessing Officer is a matter of record and when disputed, must be examined and decided on preponderance of probabilities. Factually, it is correct that, as per the record, the agreement is not on record. On examination of the said dispute on the preponderance of probabilities with reference to the evidence/material available, we have to hold that the agreement with Quest was not filed with the assessing officer in the assessment years 2002-03 and 2003-04. Secondly, we have quoted above the reasons to believe recorded for the assessment year 2002-03, which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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