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TMI Blog2018 (1) TMI 1540X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(1)(a) but in this case it is an order passed by the Assessing Officer under Section 143(3) of the Act. The reassessment proceedings were initiated on the basis of the return and its enclosures. No tangible or new material came to the possession of the Assessing Officer subsequently. In the absence of any tangible material which came to the possession of the Assessing Officer, the proceeding cannot be reopened by issuing notice under Section 148 of the Act. Since the scrutiny proceeding under Section 143(3) of the Act was completed by an order dated 29.12.2011, in view of the judgment of Tanmac India [2017 (1) TMI 122 - MADRAS HIGH COURT ] AO cannot reopen the completed assessment in the absence of any new or tangible material. Therefore, even the reopening of assessment itself is invalid in law. - Decided in favour of assessee. - IT APPEAL NO. 2347 (MDS.) OF 2017 [ASSESSMENT YEAR 2009-10] - - - Dated:- 25-1-2018 - N.R.S. Ganesan, Judicial Member And S. Jayaraman, Accountant Member S. Sridhar, Adv. for the Appellant. Smt. Ruby George, CIT for the Respondent. ORDER N.R.S. Ganesan, This appeal of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 147 of the Act. 4. Coming to the merit of the issue, the Ld. counsel for the assessee submitted that admittedly, the payment of ₹ 5,25,00,000/- was made to Canadian Crystaline Emirates, UAE. This payment was made for erection and commissioning charges. It is not for technical service. Therefore, according to the Ld. counsel, the profit earned by Canadian Crystaline Emirates in respect of the payment made by the assessee towards erection and commissioning charges is not taxable in India, hence, the assessee is not liable to deduct tax at all under Section 195 of the Act. Referring to Explanation 2 to Section 9(1)(vii) of the Act, the Ld. counsel submitted that the consideration made for commissioning and erection of the plant cannot be considered to be fee for technical service. According to the Ld. counsel, the design and machinery belong to assessee and the Canadian Crystaline Emirates has to erect the machinery which amounts to construction. Therefore, according to the Ld. counsel, the payment is not liable for TDS. 5. On the contrary, Smt. Ruby George, the Ld. Departmental Representative, submitted that the assessee made a payment to non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appears that the assessee purchased equipments from M/s. Alfatah International Navigation Company Limited, Jeddah, Kingdom of Saudi Arabia. The contract of purchase is available at page 1 of the paper-book. As per this contract, the assessee has purchased the machinery and equipments from Saudi Arabian company. The assessee has entered into another agreement for installation and commissioning of machinery, a copy of which is available at page 27 of the paper-book. As per this agreement, M/s. Canadian Crystalline Emirates Trading Company, UAE is only a service provider for installation of the machinery. The machinery was purchased outside India. It was supplied outside India. The agreement to install the machinery is also made outside India. Therefore, M/s. Canadian Crystalline Emirates Trading Company, UAE has no business connection or place of business in India. The entire services were rendered outside India. 8. We have carefully gone through the provisions of Section 9(1)(vii) of the Act which reads as follows:- 9(1)(vii) income by way of fees for technical services payable by- (a) the Government ; or (b) a person who is a resident, except w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Explanation 2 to Section 9(1)(vii) of the Act, has clarified that rendering of managerial, technical and consultancy services would be considered as technical services but consideration for any construction, assembly, mining or like project would not be construed as technical services. In view of this Explanation 2 to Section 9(1)(vii) of the Act, we have to examine whether the service rendered by M/s. Canadian Crystalline Emirates Trading Company, UAE would amount to technical service or not. 11. We have carefully gone through the agreement entered into between the assessee and M/s. Canadian Crystalline Emirates Trading Company, UAE. It is obvious from the agreement that the assessee has entered into the agreement for purchase of design, machinery, etc. in respect of seawater desalination equipment of capacity of 60,000M3 per day. M/s. Canadian Crystalline Emirates Trading Company, UAE agreed to install and commission the desalination equipment outside the country. The equipment, specifications, designing, drawing, etc. shall remain the property of the assessee-company. In fact, the agreement reads as follows:- COPYRIGHTS AND TITLE: The Contractor he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee holding that it is a capital expenditure. The CIT (Appeals) rejected the appeal of the assessee and confirmed the disallowance made by the Assessing Officer. This Tribunal also by an order dated 18.08.2006, confirmed the order of the Assessing Officer as well as the CIT (Appeals). On further appeal by the assessee before the High Court, it was found that the Assessing Officer initiated reassessment proceedings solely on the basis of return of income and the enclosures thereto, being the financials and the deed of partnership. The High Court found that the above said documents were part of record and on that basis, the intimation under Section 143(1)(a) of the Act was issued on 01.12.1998. Subsequently, the High Court found that the Department cannot be permitted to avail the extended time limit in the absence of any new or tangible material, when the time limit for scrutiny assessment has elapsed on 31.03.2001, prior to issue of notice under Section 148 of the Act. Thus, it was found that the issue of notice for reassessment proceeding is an arbitrary exercise of power and a review of proceedings is not permissible under the scheme of the Income-tax Act. In fact, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified therein, to produce or cause to be produced any evidence on which the assessee may rely in support of such claim. Having done so, an assessment is to be completed in terms of section 153(1) of the Act within a period of two years from the end of the assessment year in which the income was first assessable, in this case, on or before 31.3.2001. 10. Let us now see the sequence of events that have transpired in this case. The assessee filed a return of income pursuant to which, an intimation dated 1.12.1998 under section 143(1) (a) of the Act was issued. The provisions of section 143(2) require that if the assessing officer considered it necessary or expedient to ensure that the assessee has not understated income, claimed excessive loss or underpaid tax in any manner, the assessment is to be subject to further scrutiny, a notice under section 143(2) is liable to be issued and the assessment completed on or before 31.3.2001. This was not done in the present case. Subsequently, a notice under section 148 has been issued on 9.12.2002 under section 148 of the Income Tax Act taking advantage of the now extended limitation of four years to re-assess income on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bus earlier, the Department cannot be permitted to avail of the extended time limit in the absence of any new or tangible material, when the time for scrutiny assessment has elapsed on 31.3.2001, prior to issue of notice u/s. 148. The notice under section 148 dated 9.12.2002 is thus an arbitrary exercise of power and a review of proceedings impermissible in law.' 14. In the case before us, the original assessment order under Section 143(3) of the Act was passed on 29.12.2011. Therefore, the Assessing Officer, after scrutinizing the entire material available on record, allowed the claim of the assessee. In the case before High Court, it was only an intimation under Section 143(1)(a) of the Act, but in this case it is an order passed by the Assessing Officer under Section 143(3) of the Act. The reassessment proceedings were initiated on the basis of the return and its enclosures. No tangible or new material came to the possession of the Assessing Officer subsequently. 15. In view of the above, in the absence of any tangible material which came to the possession of the Assessing Officer, the proceeding cannot be reopened by issuing notice under Section 148 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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