9911796707
TMI Blog2011 (8) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... income on the basis of income returned and assessed in the preceding years. The petitioner declared its gross revenues at US$ 25,406,750/- and offered revenues of US$ 871,694/- for inside India activities and revenue of US$ 1,63,695/- for outside India operations @ 10% and 1% respectively. The income offered by the petitioner was under the presumptive scheme under the Act by adopting income @ 10% for revenues earned inside India and @ 1% for revenues accrued outside India. The return was processed under Section 143(1) of the Act, but, subsequently, it was selected for scrutiny. The Assessing Officer issued a notice dated 28th June, 2004 under Section 142 (1) of the Act directing the petitioner to furnish various details and information. The information sought by the Assessing Officer is as under :- i. Copy of the work order / contract. ii. State the reason as to how article 11 of the DTAA is available. iii. Detail of employees who came to India during the relevant assessment period, and whether returns in respect of these have been filed. iv. A certificate stating period of stay of the employees during the last three years and during the relevant year. v. Copies of invoic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere." 6. During the financial year under consideration the assessee received revenues from ONGC vide contract No.ZA WELL PLATROM (ZA-PWW) Project (Job No.37) and contract No.MRBC/E&C/MM/ZA-WPP/02/2000. In the previous assessment years the gross total income of the assessee was arrived at after allowing sub-contractors & other cost as deduction from the gross receipts (on which tax has been deducted at source) and on the balance amount, 10% was estimated as taxable profits of the assessee under Article 7(3). The provision of Article 7(6) of the DTAA provides that profit of PE shall be determined by the same method year by year unless there is good and sufficient reasons to the contrary. Therefore, for this year also assessment is being completed on the same method as adopted in the assessee's own case for the previous assessment years." 5. After a lapse of more than four years, the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be brought to tax in view of the decision of Hon'ble Supreme Court in the case of Hyundai Heavy Industries wherein it has been observed that "the attraction rule implies that when an enterprise (GE) sets up PE in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can tax all profits from the GE derives from the source country whether though PE or not. It is the act of setting out a PE which triggers the taxability of transaction in the source State and other applicable ruling of the Hon'ble Court". Keeping in view of above, I have reasons to believe that income of the assessee as alleged to have earned outside India has escaped assessment as the same has been offered to tax only 1% of the gross revenues whereas the same should have been assessed in view of the provision of the DTAA. The income escaping assessment is more than ₹ 1 Lacs." 6. Pursuant to the procedure evolved by the Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer & others 259 I.T.R. 19 (SC), the petitioner filed a detailed objection questioning the validity of the proceedings initiated under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two separate contracts. It was further contended that the assessee had misled the department that it does not have a Permanent Establishment (P.E.) in India whereas it had a P.E. in India for negotiation and execution of the contract. It was further pointed out that the assessee had misled the department into thinking that the inside India works started only at the time of installation, whereas the projects started from the day the agreement was executed and therefore there was a clear cut failure on the part of the assessee to disclose fully and truly all material facts. It was submitted that in view of the decision of the Supreme Court in the case of Commissioner Income Tax & another Vs. Hyundai Heavy Industries Co. Ltd. 291 I.T.R. 482 (SC), the P.E. of the assessee came into existence before the project started and none of the material was supplied to ONGC outside India and in fact the title of the goods were transferred in India. 8. The petitioner, being aggrieved by the aforesaid notice and the order passed by the Assessing Officer, has filed the present writ petition. 9. In the light of the aforesaid facts, the court has heard Mr. C. S. Agarwal, the learned senior counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns while issuing a notice under Section 148 of the Act and that reasons so recorded for reopening the proceedings were duly supplied to the petitioner. The learned counsel for the department further submitted that in the reasons recorded for reopening the proceedings, it was sufficient for the Assessing Officer to record that he has reasons to believe that the income chargeable has escaped assessment and that it was not necessary that the reasons should record that the assessee had failed to disclose fully and truly the material facts necessary for his assessment. In support of his submission, the learned counsel for the department placed reliance upon the decision of the Supreme Court in Calcutta Discount Co. Ltd. Vs. Income-Tax Officer, Companies District I, Calcutta & another, 41 I.T.R. 191. The learned counsel further submitted that the Assessing Officer, while passing the assessment order under Section 143 (3) of the Act, had relied mechanically on the assessment made in the earlier assessment years and consequently on the basis of the information gathered by the department, reassessment proceeding has been initiated. The learned counsel further submitted that the satisfaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the petitioner at length. The hearing is not concluded. List this matter for further hearing on 05th October, 2010. Interim order, if any to continue till the disposal of the writ petition." 17. The matter, at that stage, was pending before the Dispute Resolution Panel. It transpires that the Dispute Resolution Panel issued certain directions, by its order dated 30th September, 2010, to the Assessing Officer, pursuant to which, the Assessing Officer passed a final assessment order dated 29th October, 2010 alongwith a notice of demand under Section 156 of the Act. The said assessment order and the notice of demand was passed in gross violation of the interim order dated 01st July, 2010 by which the Assessing Officer was restrained from passing any final assessment order. The petitioner, being aggrieved by the issuance of the final assessment order and issuance of a demand notice under Section 156 of the Act, filed an amended writ petition before this Court which could not be taken on record since there was no application praying to amend the writ petition nor was there any order of the court permitting the petitioner to amend the writ petition or file an amended writ pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties to the same position as if the order of injunction had not been violated. The Supreme Court held that any order passed by an authority having knowledge of the interim order of the court, was of no consequence and that the said order remained a nullity in the eyes of law. The Supreme Court held that the order passed by the State Government in contravention of the interim order remains unenforceable and in-executable. 21. In P.K. Nair Vs. I.T.O. A-Ward Alwaye & others 90 I.T.R. 512 (Kerala), it was held :- "We have already referred to the question whether we will justified in interfering in view of the assessment orders having been passed for the five years after we issued notice on this petition. We think the procedure will have to be following by us. Any assessments completed during the pendency of this writ application, we consider, must depend on the decision that we take in this case and if there was no jurisdiction to take action under Section 147 of the Act the whole proceedings are vitiated as without jurisdiction and it necessarily follows that the assessment orders that followed such action cannot stand. We think that in the interest of justice the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1 : Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. [Explanation. - For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.] (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." 24. A perusal of the aforesaid provisions indicates that the Assessing Officer has wide powers to reopen the assessment if he has reasons to believe that the income chargeable to tax has escaped assessment. However, this wide power is circumscribed and does not give jurisdiction to the Assessing Officer to reopen a completed assessment on a mere change of opinion. The reasons to believe is not based nor can it be an outcome of a change of opinion. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this reason that the reason or ground for reopening of assessment in terms of the proviso to Section 147 are totally non-existent. According to our reasoning, we have addressed only the absence of ground and not the sufficiency. Learned counsel for the respondents could not satisfy that there was any failure on the part of the assessee as envisaged by the proviso to Section 147 or in any manner by suppression or omission, he took advantage and escaped the assessment." 28. In Commissioner of Income-Tax and another Vs. Saipem SPA [2008] 300 ITR 133, a Division Bench of this Court held that if there was no fault on the part of the assessee, the delay could not be condoned and that the limitation for initiating the proceedings would come to an end after four years. The High Court held:- "From the perusal of the facts it is clear that there was no fault of the assessee. Therefore, the Income-Tax Appellate Tribunal and the Commissioner of Income-Tax (Appeals) were right on the application of Explanation 2 (c) (ii) of Section 147 of the Income-tax Act. Even if it is deemed to be the escaped assessment within the meaning of Explanation 2(c)(ii) of Section 147, then in view of the undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons has to be recorded prior to the stage of issuance of notice under Section 148 of the Act and that the reason to believe or the satisfaction recorded under Section 148 of the Act cannot be supplemented by the Assessing Officer in a subsequent order. The Supreme Curt in the case of Mohinder Singh Gill & Another Vs. The Chief Election Commissioner, New Delhi & others 1978 (1) SCC 405 held:- "8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to Court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose, J. in Commissioner of Police, Bombay Vs. Gordhandas Bhanji AIR 1952 SC 16: Public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended and are intended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be taxable in India, but only so much of profits having economic nexus with PE in India would be taxable in India. To this extent, we find no infirmity in the impugned judgment of the Tribunal. Accordingly, we are of the view that the Tribunal was right in holding that profits attributable to the Korean Operations was not taxable in view of Article 7 of CADT." 33. A perusal of the reasons recorded by the Assessing Officer for reopening the assessment proceedings under Section 148 of the Act which has also been extracted earlier clearly indicates that the reassessment proceedings have been initiated on the basis of the decision of the Supreme Court in the case of Hyundai Heavy Industries Co. Ltd. (supra). 34. In Mcdermott International Inc. Vs. Additional Commissioner of Income Tax and another, 259 ITR 138, a Division Bench of this Court held that the judgment of a higher authority was no ground to reopen the assessment under Section 147 and 148 of the Act, inasmuch as, there was no failure on the part of the assessee. The court held: "According to learned counsel, the information as envisaged under the Explanation would also be decision of superior authorities and includes tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. In fact, the law, as it then stood was understood identically both by the assessee and the Assessing Officer. Merely because subsequently the apex court pronounced the law to be otherwise, on the date of filing of the return of the income when the assessee made a claim for deduction, the claim could not be termed to be either lacking in material particulars or could not be termed to be untrue. In other words, all the material facts were fully disclosed and no false facts were stated in support of the claim made. The reasons recorded themselves show that the Assessing Officer has changed his opinion only on the basis of subsequent judgment rendered by the apex court." 36. In the light of the aforesaid, it is clear that merely because the Supreme Court has pronounced a law subsequently does not entitle the Assessing Officer to initiate reassessment proceedings under Section 148 of the Act. In fact, such reasons so recorded amounts to a change of opinion. In Commissioner of Income Tax Vs. Kelvinator of India Ltd., 256 ITR 1, the Full Bench of the Delhi High Court held that Section 147 of the Act did not confer any power upon the Assessing Officer to initiate reassessment proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to giving premium to an authority exercising quasi judicial function to take benefit of its own wrong." 37. The aforesaid decision was affirmed by the Supreme Court in Commissioner of Income Tax Vs. Kelvinator of India Ltd., 320 ITR 561 wherein the Supreme Court held that the "reasons to believe" indicated in the notice u/s 148 was a mere change of opinion and that there was no tangible material to come to a conclusion that there was a escapment of income from the assessment. 38. In Consolidated Photo and Finvest Ltd. Vs. Assistant Commissioner of Income Tax [2006] 281 ITR 394 (Delhi), the Court held that a mere change of opinion would be applicable only to a situation when the Assessing Officer has taken a conscious decision on a particular matter in issue and it would have no application where the assessment order does not record the aspect which formed the basis for reopening of the assessment. 39. In the light of the aforesaid, the court finds that the Assessing Officer committed a manifest error in reopening the assessment proceedings under Section 148 of the Act. 40. For the reasons stated above, the notice dated 31st March, 2009 issued under Section 148 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
