2012 (5) TMI 99 - HC - Income Tax

Court upholds jurisdiction to reopen assessment under Income Tax Act; non-resident individual assessable for commission income.

ADITYA KHANNA Versus ASST. COMMISSIONER OF INCOME TAX

The court upheld the Assessing Officer's jurisdiction to reopen the assessment under Section 147/148 of the Income Tax Act, finding sufficient material to ... Reopening assessment - petitioner contested that he is a non-resident and had no income chargeable to tax in India other than what was declared - Held that:- No merit in the writ petition - the affidavit filed by department affirmed that he had initiated proceedings for reassessment on the basis of precise information received from the Enforcement Directorate - the petitioner had undisputedly rendered services in connection for the oil under the “Oil for Food Programme” - Clause (i) of sub-section (1) of Section 9 says that all income accruing or arising, whether directly or indirectly, through or from any business connection in India shall be deemed to accrue or arise in India - several documents found by the Enforcement Directorate in the premises of Hamdaan Exports were found to have been addressed to the petitioner which indicated that the petitioner was present in India - the money had come into the bank account of Indrus evidencing to show that certain communications had been addressed to the petitioner in India, the Indian fax number of the petitioner was given in some of the letters addressed to the petitioner which indicated his presence in India – against assessee. Issues Involved:1. Jurisdiction to reopen assessment under Section 147/148 of the Income Tax Act.2. Validity of the notice issued under Section 148.3. Assessment of income for a non-resident individual.4. Business connection in India under Section 9(1)(i) of the Income Tax Act.5. Sufficiency and relevance of material for reopening the assessment.Detailed Analysis:1. Jurisdiction to Reopen Assessment:The petitioner challenged the jurisdiction of the Assessing Officer (AO) to reopen the assessment under Section 147/148 of the Income Tax Act. The court held that at the stage of issuing notice under Section 148, the AO is only required to form a prima facie belief that income chargeable to tax had escaped assessment. The AO does not need to make out a foolproof case or reach a firm conclusion. The court found that the AO had sufficient material to form such a belief, thus upholding the jurisdiction to reopen the assessment.2. Validity of the Notice Issued Under Section 148:The petitioner argued that the notice issued under Section 148 was without jurisdiction. The court examined the reasons recorded by the AO and the material available before him, including statements made by the petitioner and Andaleeb Sehgal before the Enforcement Directorate and documents seized from the premises of Andaleeb Sehgal. The court concluded that there was prima facie material justifying the belief that income chargeable to tax had escaped assessment. Therefore, the notice issued under Section 148 was valid.3. Assessment of Income for a Non-Resident Individual:The petitioner, a non-resident individual, contended that he was not assessable in respect of any income unless it was deemed to have accrued or arisen in India. The court noted that under Section 5(2) of the Act, the total income of a non-resident includes income that accrues or arises in India. The AO's belief that the petitioner's commission income had a business connection in India was based on material indicating that the business operations were controlled from India. Thus, the petitioner was assessable for the commission income.4. Business Connection in India Under Section 9(1)(i):The court examined whether the petitioner had a business connection in India as per Section 9(1)(i) of the Act, which deems income to accrue or arise in India if it is earned through a business connection in India. The court found that the petitioner's role in procuring oil contracts and the control of business operations from India established a business connection. The commission income, therefore, was deemed to accrue or arise in India.5. Sufficiency and Relevance of Material for Reopening the Assessment:The court emphasized that at the stage of reopening the assessment, the AO only needs to form a prima facie belief based on relevant material. The AO had statements from the petitioner and Andaleeb Sehgal, and documents seized by the Enforcement Directorate, which indicated that the petitioner's business activities were controlled from India. This material was sufficient to justify the reopening of the assessment.Conclusion:The court dismissed the writ petition, upholding the AO's jurisdiction to issue the notice under Section 148 and the reopening of the assessment on the grounds that income chargeable to tax had escaped assessment. The court found that the AO had sufficient and relevant material to form a prima facie belief regarding the escapement of income and the existence of a business connection in India. All interim orders were vacated, and the writ petition was dismissed with no order as to costs.