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TMI Blog2018 (2) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... e had declared the said receipts in its computation of income and claimed them to be exempt and similar declaration was made by the auditor in the audit report. - Decided in favour of assessee - ITA No. 436/PUN/2015, CO No.03/PUN/2017, ITA No. 499/PUN/2016, CO No.123/PUN/2017 And ITA No. 465/PUN/2015 - - - Dated:- 23-1-2018 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For The Assessee : Shri Dhanesh Bafna For The Revenue : Smt. Nirupama Kotru, CIT ORDER PER SUSHMA CHOWLA, JM: Out of this bunch of appeals, two appeals filed by the Revenue are against separate orders of DCIT (IT)-II, Pune, dated 26.02.2015 and DCIT(IT), Circle-2, Pune dated 27.01.2016 relating to assessment years 2006-07 2007-08 passed under section 144C(13) / 144C(13) r.w.s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short the Act ). The assessee filed Cross Objections against the appeals of Revenue relating to assessment years 2006-07 2007-08. Further, the assessee also filed an appeal against the order of DCIT (IT)-II, Pune, dated 26.02.2015 relating to assessment year 2008-09 passed under section 143(3) r.w.s. 147 r.w.s. 144C(13) of the Act. 2. The issue ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that the issue raised in the present bunch of appeals is first against reopening of assessment under section 147 of the Act, wherein the plea of assessee is that where the assessee had fully disclosed all the material facts necessary for assessment, then in the absence of any tangible material , the reopening of assessment beyond period of four years is not sustainable. He further pointed out that similar issue has arisen before the Tribunal in assessee s own case, wherein the Tribunal in ITA o.128/PUN/2014, relating to assessment year 2005-06 along with CO No.10/PUN/2015, vide order dated 28.12.2016 had allowed the said issue in favour of assessee and the Revenue s appeal was dismissed and the Cross Objections raised by the assessee on merits were held to be academic. He further pointed out that reasons recorded for reopening the assessment for assessment year 2005-06, copy of which is placed at pages 76 77 of the Paper Book were same as recorded for the years under appeal i.e. assessment years 2006-07 to 2008-09. He referred to the copy of reasons recorded in this regard, which are placed in Paper Book-I and the reasons recorded for assessment year 2005-06, which are pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 could be reopened in order to assess the escapement of income in the hands of assessee. The assessee for the year under consideration had furnished the return of income 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 ₹ 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 mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The original assessment in the case was completed by issue of intimation under section 143(1) of the Act. The grievance of the Department in this regard is that in the absence of any assessment being completed under section 143(3) of the Act, since no enquiry was made by the Assessing Officer and the income had escaped assessment, hence re-assessment proceedings were correctly initiated in the hands of assessee. However, on the other hand, the case of assessee before us is that in the absence of any tangible material which had come to the knowledge of the Assessing Officer for recording reasons for reopening assessment of escapement of income, then in such circumstances, re-assessment proceedings were not appropriate. 11. We find that similar 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 assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, the assessee sought reasons for reopening the assessment and filed objections. The objections filed by the assessee were rejected by the Assessing Officer as there was no assessment under section 143(3)/147 of the Act and the Assessing Officer was satisfied that there was escapement of income on the basis of tangible material before him, then it was fit case for reopening the assessment. The DRP also upheld the action of Assessing Officer, in view of the ratio laid down by the Hon‟ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). 10. The assessee is in appeal against the said exercise of jurisdiction by the Assessing Officer under section 147 of the Act. The first plea which has been raised by the assessee is that 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 br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and foremost for invoking the said provisions is the reason to believe‟ of escapement of income and such reason to believe has to be based on tangible material or otherwise there has to be live link between the reason to believe and escapement of income‟ then only the proceedings under section 147 of the Act can be initiated. The proviso under section 147 of the Act provides that where assessment under section 143(3) of the Act has been made, then no action under the main section would be taken after expiry of four years from the end of relevant assessment year, unless escapement of income is by reason of failure on the part of assessee to make return under section 139 of the Act or in response to notice under section 142(1) of the Act or 148 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 provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or tangible material to come to the conclusion that there was escapement of income. The relevant findings of the Tribunal are as under:- 16. In so far contentions of the department that the Assessing Officer did not get opportunity to apply his mind on the documents furnished by assessee as the original assessment was completed u/s.143(1), we do not find any force in the said contentions. The Hon‟ble Delhi High Court in the case of CIT Vs. Orient Craft Ltd. (supra) has held that expression, reason to believe‟ does not have different meaning, where assessments are framed u/s.143(1) and where assessment is completed u/s.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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice under section 148 of the Act. The Hon‟ble Bombay High Court also considered the ratio laid down by the Apex Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). The relevant observations of the Tribunal in this regard are as under:- 16. In so far contentions of the department that the Assessing Officer did not get opportunity to apply his mind on the documents furnished by assessee as the original assessment was completed u/s.143(1), we do not find any force in the said contentions. The Hon‟ble Delhi High Court in the case of CIT Vs. Orient Craft Ltd. (supra) has held that expression, reason to believe‟ does not have different meaning, where assessments are framed u/s.143(1) andwhere assessment is completed u/s.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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt while holding so, considered the decisions rendered by the Hon‟ble Apex Court in the case of CIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. reported as 291 ITR 500 and CIT Vs. Zuari Estate Development investment Co. Ltd. (supra). The relevant extract of the judgment rendered in the case of Khubchandani Healthparks (P) Ltd. Vs. ITO (supra) reads as under : 3. On hearing the parties, we find that the Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500, had an occasion to deal with identical facts, namely reopening Notices issued under Section 148 of the Act where assessment is completed earlier by Intimation under Section 143(1) of the Act. In the above case, the Apex Court held that a Notice 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 Inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxation Avoidance Agreement between India and Sweden ( Tax treaty‟). 2. SSDAB provides IT support services to Sandvik AB Group companies all over the world, including Sandvik Asia Limited ( SAL‟) and Walter Tools India Private Limited ( Walter India‟) in India. 3. During the year ended 31 March 2008, SSDAB has charged ₹ 19,414,642 to SAL and ₹ 310,396 to Walter India towards the aforesaid IT support services. The receipts towards such IT support services rendered by SSDAB do not fall within the ambit of Royalties or Fees for technical services within the meaning of Article 12 of the Tax treaty read with the Protocol thereto. 15. Further in Form No.3CEB, audited report, the assessee in clause 12 Appendix B has given declaration 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings are invalid and bad in law. Accordingly, we hold so and cancel the same. The consequent order passed under section 143(3) r.w.s. 147 of the Act also does not stand. Thus, the ground of appeal No.1 raised by the assessee is allowed and the balance grounds of appeal become academic in nature. 12. We find that issue raised in the present appeal is identical to the issue before the Tribunal and following the same parity of reasoning as in the case of sister concern of the assessee, we hold that in the absence of any tangible material establishing escapement of income in the hands of assessee, the Assessing Officer has erred in exercise of jurisdiction under section 147 of the Act by reopening assessment after recording reasons. The reasons to believe of escapement of income should have a live link with the tangible material and even if the assessment order was passed under section 143(1) of the Act, the requirement is for the Assessing Officer to come to a finding on the basis of tangible material to establish his case of reason to believe of escapement of income; in the absence of which, re-assessment proceedings are both invalid and bad in law. Accordingly, we hol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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