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TMI Blog2013 (8) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... n 148 read with Section 147 of the Act for the assessment year 2002-03 is hereby set aside – Decided in favor of Assessee. - Writ Petition (Civil) No. 6966/2007 - - - Dated:- 22-8-2013 - Sanjiv Khanna And Sanjeev Sachdeva,JJ. For the Petitioner : Mr. Salil Kapur with Mr. Vikas Jain, Advocates. For the Respondents : Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Puneet Gupta, Standing Counsel. ORDER Sanjiv Khanna, J. G.S. Engineering Construction Corporation (formally known as LG Engineering Construction Corporation) by this writ petition challenges validity of the reassessment notice dated 29th March, 2007 for assessment year 2002-03, which was issued under Section 148 read with Section 147 of the Income Tax Act, 1961 (the Act, for short). As the objections filed by the petitioner to the reassessment notice stand dismissed vide order dated 23rd August, 2007, the said order is also impugned. 2. The undisputed factual position is that for the assessment year 2002-03, the petitioner had filed their return on 31st October, 2002, declaring income of Rs. 2,14,07,600/- which was made subject matter of regular assessment order, dated 18th March, 2005, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed return on 8.3.04 declaring income at Rs.2,00,24,920/-. The case was taken into scrutiny by issuing notice u/s 143(2) of the Income Tax Act, 1961. The assessee filed the revised computation of the income on 04.02.2005 declaring income at Rs.2,63,00,860/-. The assessment was completed on 18.03.05 at the assessed income of Rs.4,36,52,621/-. The assessee is a non-resident foreign company incorporated in Korea and is engaged in the business of execution of construction contracts. During the assessment year under consideration, the assessee has undertaken the following projects:- NH-I project Haryana, Catalytic Dewaxing Project Kolkata, WH2 Project Bihar, AV2 project SM Project. LG Engineering Construction was awarded a contract by Indian Oil Corporation which entails supply, installation commissioning of catalysis Dewaxing Project in its refinery at Holdia in West Bengal. The assessee was awarded a Turnkey Project (Catalytic Dewaxing Unit) at Haldia Refinery by Indian Oil Corp. in September 2000. The project involved Basic and detailed Engineering Construction, Installation, Testing Commissioning and total project management to be completed in 18 months. Total amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), New Delhi under cover of letter No. DDIT/CIR-1(2)/International Taxation/2006-07/180. The said letter mentions that records, with separate reasons, were enclosed. Approval was received from the office of the Additional Director, Range-I vide letter dated 23rd March, 2007. This letter dated 23rd March, 2007 mentions that administrative approval stands granted in the case of L G Engineering Construction. Thereafter, Mr. Vijay Kumar Chadha, Deputy Director, Income tax, Circle 1(2), International Taxation, New Delhi had issued notice after recording in the order sheet:- M/s LG Engineering and Construction Corporation A Y 02-03 The assessee has filed Return of Income declaring income of Rs.2,14,07,600/- on 31.10.2002, further, filing revised return on 8.3.04 declaring income at Rs.2,00,24,920/-. The case was taken into scrutiny by issuing notice u/s 143(2) of the Income Tax Act, 1961. The assessee filed the revised computation of the income on 04.02.2005 declaring income at Rs.2,63,00,860/-. The assessment was completed on 18.03.05 at the assessed income of Rs.4,36,52,621/-. The assessee is a non-resident foreign company incorporated in Korea and is engaged in the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded before issue of notice but rather is an order-sheet entry made by Mr. Vijay Kumar Chadha recording that he had issued notice under Section 148 of the Act, on 24th March, 2007. It is also stated that reasons to believe in original are neither available in the assessment file nor are they available in the office of Additional Director of Income Tax, Range-I, International Taxation. It is stated that there was a fire in the office of the Additional Director of Income tax in 2009, in which the records were destroyed. The aforesaid affidavit leaves several questions unanswered and is debatable. It is not stated how and on what basis Ms. Nishtha Tiwari has communicated the reasons to believe under her signature and why these reasons are different from the noting dated 24th March, 2007 which, in fact, is the only document available on record which can be called and treated as reasons to believe , but the respondents have vehemently denied and stated that these are not the reasons to believe . Further, it remains unanswered as to why approval from Additional Director of Income Tax was required when notice was issued by Deputy Director. From where and how Ms. Nishtha Tiwari come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purportedly dated 24th March, 2007 under signature of Mr. Vijay Kumar Chadha and undated reasons to believe under the signatures of Ms. Nishtha Tiwari. The first four paragraphs of the note and reason to believe are identical but the last two paragraphs are different. We may have taken the note recorded on 24th March, 2007, by Mr. Vijay Kumar Chadha as the reasons which were recorded before the issue of notice but the stand and stance of the Revenue is to the contrary. They have stated that reasons are not available on the assessment records but the same were recorded prior to 19th March, 2007 and were communicated to Additional Director of Income Tax, after which the approval was received on 23rd March, 2007. The stand of the Revenue is that note of Vijay Kumar Chadha dated 24th March, 2007, are not the reasons but this note was recorded by him as a noting on the order sheet at the time of issue of notice. They have pleaded and argued that the reasons to believe actually recorded before the issue of notice, were communicated to the petitioner under signature of Ms. Nishtha Tiwari and the present writ petition should be decided on the basis of the said reasons. 12. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly define why the bifurcation of Rs 605.34 lakhs and Rs 436.53 lakhs was relevant and prima facie not permissible, or how in view of Article 5(3) DTAA this amount should have been taxed differently. Thus, the reasons to believe relied on by the Revenue do not show why and for what reasons income chargeable to tax had escaped assessment because the CDU project through which the assessee had earned income, was a permanent establishment as per Article 5(3) of DTAA between India and Korea. They are silent and do not show any nexus and link between the facts recorded and how and why income chargeable to tax has not been taxed or under taxed. No reasonable person on reading the reasons can understand the ground why reassessment notice has been issued. In fact, they appear to be incomplete and incomprehensible, as after recording the observation that the petitioner had a permanent establishment in India, they do not indicate or state why and how the permanent establishment had adversely impacted the tax payable or income assessed in the original assessment made under Section 143(3) of the Act. 15. The effect of reopening is to partly vacate or set aside the original order of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble grounds, which would clothe the Assessing Officer to issue re-assessment notice. Adequacy or sufficiency of the grounds is not a matter for the Court to investigate and, therefore, is not a justiciable issue, but the expression reason to believe postulates that the belief or reason must be held in good faith and not on mere pretence. It is open to the Court to examine whether the reasons for formation of belief have a rational connection with or relevant bearing on the formation of belief and are not extraneous or irrelevant. The words reason to believe are not reason to suspect, therefore, it is essential before re-assessment proceedings are initiated that the requirements of law should be satisfied i.e. live link or close nexus between the material and the reasons recorded by the Assessing Officer and that the belief formed by him should be there on record and when the link exists, re-assessment proceedings will be valid but where the link is too tenuous and irrational to provide a legally sound basis, re-assessment proceedings would be quashed. 18. In Assistant Commissioner of Income-tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC), Supreme Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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