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TMI Blog2018 (2) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... has raised the following grounds of appeal:- 1. Ground 1: On the facts and circumstances of the case, and in law, the Learned Dispute Resolution Panel ('Ld.DRP') erred in confirming the action of the Learned Assessing Officer ('Ld AO') in reopening the assessment proceedings without any 'reason to believe' as required by the provisions of section 147. It is prayed that the reopening initiated are invalid and void and hence be quashed. 2. Ground 2: Without prejudice to Ground 1 above, on the facts and circumstances of the case, and in law, the Ld. DRP erred in upholding the action of Ld. AO of taxing receipts for IT Support services provided to its Indian affiliates amounting to Rs. 8,072,286 as Royalty within the meaning of Article 12 of the Double Taxation Avoidance Agreement between India and Sweden ('tax treaty between India and Sweden'). It is prayed that the addition made by the Ld. AO and confirmed by the Ld. DRP be deleted. 3. Ground 3: Without prejudice to Ground 1, on the facts and circumstances of the case, and in law, the Ld. DRP has erred in upholding the action of Ld. AO of taxing receipts for IT Support services provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-09, order dated 10.11.2017 and pointed out that the issue was considered at length by the Tribunal and relying on earlier order of Tribunal in the case of DDIT Vs. Sandvik Information Technology AB in ITA No.128/PUN/2014 along with CO No.10/PUN/2015, relating to assessment year 2005-06, order dated 28.12.2016, had held that in the absence of any new information or tangible material to come to the conclusion that there was escapement of income, even in proceedings which were completed under section 143(1) of the Act, held that there was no merit in invoking of re-assessment proceedings under section 147 of the Act. The learned Authorized Representative for the assessee further referred to the reasons recorded for reopening of assessment in the case of Sandvik Information Technology AB, relating to assessment year 2005-06 along with computation of income and the Annexure to Form No.3CEB, placed in Compilation No.II at pages 24 and 25 along with copy of order of Tribunal dated 28.12.2016 in ITA No.128/PUN/2014, placed in Compilation No.II at pages 28 to 45. Further, the learned Authorized Representative for the assessee referred to reasons recorded for reopening of assessment dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome in time declaring total income at Nil. The Assessing Officer under the provisions of section 147 of the Act, recorded reasons for reopening assessment on the ground that it was noticed from Form No.3CEB of Sandvik Asia Ltd. for assessment year 2008-09 that the assessee had received Rs. 80,72,286/- as IT Support Services and the same was not offered to tax. The Assessing Officer further held that the said receipts paid to the assessee were in the nature of Royalty and Fees for Technical Services and taxable in India as per Article 12 of DTAA of India and Sweden as well as section 9(1)(vi) and 9(1)(vii) of the Act. Reference was made to several decisions in this regard by the Assessing Officer and in view thereof, it was recorded by the Assessing Officer that he was satisfied that income for the assessment year under consideration had escaped assessment within meaning of provisions of section 147 of the Act. Thereafter, proceedings were reopened by issue of notice under section 148 of the Act. The said reasons were recorded by the Assessing Officer on 26.07.2013. Similar reasons for reopening assessment were recorded for assessment years 2006-07, 2007-08, 2008-09 and 2009-10, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of reopening of assessment under section 147 of the Act on the basis of similar reasons recorded for reopening assessment all dated 26.07.2013 for different years arose before the Tribunal in the case of Sandvik Systems Development AB for assessment year 2008-09 and also in the case of Sandvik Information Technology AB, relating to assessment year 2005-06 and further in the case of Sandvik Australia Pty Ltd., relating to assessment year 2008-09. The Tribunal in the case of Sandvik System Development AB, in ITA No.464/PUN/2015, relating to assessment year 2008-09, vide order dated 10.11.2017 had held as under:- "9. We have heard the rival contentions and perused the record. The issue raised in the present appeal is applicability of provisions of section 147 of the Act. The said section provides that in cases where there is any escapement of income, which comes to the knowledge of the Assessing Officer, on the basis of some tangible material, then the said proceedings can be reopened in order to assess the escapement of income in the hands of assessee. The assessee had furnished the return of income in time declaring total income at Nil. The Assessing Officer recorded his rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the absence of any tangible material for reason to believe that there is escapement of income, the action adopted by the Assessing Officer was without any basis. The learned Authorized Representative for the assessee pointed out that in assessment year 2005-06 same tangible material was available with the Assessing Officer and the re-assessment proceedings were reopened. However, the DRP held that there was no material brought in the reasons recorded on the basis of which valid reasons to believe could be formed. The DRP held that it was case of re-appraisal of existing facts. It was further held by the DRP that reopening of assessment without new material was not permissible even if the original assessment was processed under section 143(1) of the Act and order was not passed under section 143(3) of the Act. Reliance of the Assessing Officer on ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) was found to be misplaced, where the case of the Assessing Officer was that the Hon‟ble Supreme Court had decided that in case the return was processed under section 143(1) of the Act, the Assessing Officer is empowered to issue notice under section 148 of the Act. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act to disclose fully and truly all material facts necessary for assessment for that assessment year. Undoubtedly, proviso is applicable in case of non-fulfilment of certain conditions laid down but before applying the provisions provided in the proviso to the section, the provisions of main section have to be seen, which clearly provides that there has to be reason to believe of escapement of income and then only provisions of section 147 of the Act can be triggered. There is no merit in the reasoning of the Revenue that where no assessment under section 143(3) of the Act has been completed and the assessment is only completed under section 143(1) of the Act and since the assessee has failed to disclose fully and truly all material facts necessary for assessment, then action under section 147 of the Act can be taken. We find no merit in the plea of the Revenue. 12. Now, coming to the facts of the present case, wherein there is finding in the case of assessee itself though by the DRP that no tangible material was brought in the reasons recorded on the basis of which valid reason to believe could be formed. It may be reiterated herein itself that reasons recorded for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(3) of the Act. The relevant extract of the findings of the Hon‟ble High court are as under: "13. Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice for-reopening an assessment under Section 148 of the Act could only be justified if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This decision of the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) has not been disturbed by the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra). In fact, the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra) makes a specific reference to its decision in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) to hold that where the assessment has been completed by Intimation under Section 143(1) of the Act, there can be no question of change of opinion. 4. We further find that the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has not dealt with the issue whether before invoking Section 148 of the Act, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, where the original assessment has been completed by Intimation under Section 143(1) of the Act. The Revenue is trying to infer that because the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in respect of international transactions with associated enterprises, which is as under:- Particulars in respect of mutual agreement or arrangement: International transactions with an associated enterprise or enterprises by way of mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit. Sr.No. Name and address of the associated enterprise with whom the international transaction has been entered into Description of such mutual agreement or arrangement Amount paid/received or payable/receivable in the transaction Method used for determining the arm's length price (See section 92C(1) as per books of account as computed by the assessee having regard to the arm's length price (Rs) (Rs) Clause 12(a) Clause 12(b) Clause 12(c) Clause 12(d) 1 Sandvik Asia Limited, Mumbai-Pune Road, Dapodi, Pune-411012 Receipt for IT support services 19,414,642 19,414,642 Refer Note 7 to Appendix C 2 Walter Tools India Private Limited, Mumbai-Pune Road, Dapodi, Pune-411012 Receipt fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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