TaxTMI 
TaxTMI 
2016 (9) TMI 1141
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.... 147; Secondly, treating the income from off shore supply to be taxable in India; Thirdly, treating the different contracts undertaken by the assessee to be one composite contract and on that basis taxing the entire revenue in the hands of the assessee under section 44BBB; Fourthly, taxing of fee for Technical services / royalty income received from ABB Limited and ABB Global Industries & Services Limited @ 40% (plus surcharge and education cess) instead of 10% as per DTAA; Lastly, the assessee has challenged the non giving of credit of tax deducted at source ('TDS'); levy of interest under section 234B and 234C; and initiation of penalty proceedings under section 271(1)(c) by the AO. 3. Before us, the Ld. Senior Counsel Mr. Perci J. Pardiwalla, submitted that in this case the reopening of assessment under section 147 vide notice dated 25.03.2011 u/s 148 is itself is bad in law and accordingly, the entire proceedings as well as the impugned orders are void ab initio. Explaining the background of the case, he submitted that, assessee, ABB Switzerland Ltd. is a non-resident company, incorporated under the laws of Switzerland. The assessee, in the statement of total income fi....
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..../De112005) (Del). The testing fees of CHF 7,00,000 is part and parcel of supply contract. Before the equipment and material is supplied, the same is required to be tested for quality assurance. In view of the above the testing charges would also not liable to tax in India. The company has received fees of CIIT 50,000 for imparting training in Switzerland to Power Grid. Equivalent INR 1,683,022 has been shown as liable to tax in this statement of total income. 7. The tax deducted at source from the above payments on the basis of certificate under section 197 issued by the Income Tax authorities is claimed as refund. 8. Income from Royalty/fees for technical services is offered for tax on Cash basis. 9. During the Financial Year 2007-08, certain employees of ABB Swiss came to India for assisting ABB India in respect of onsite services being provided by ABB India to their customers. However, there is no consideration that is charged by ABB Swiss for these services". 4. Mr. Pardiwala pointed out that the assessee had disclosed the taxable income received from Power Grid Corporation of India Ltd to the extent of Rs. 16.83 lakhs. However for the amount received on accoun....
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....uding civil works, training in India etc. d) Out of the above 3 contracts, the first contract i.e. offshore contract that is being directly executed by ABB Switzerland. The other two contracts, which are for onshore supplies and onshore services in India, are to be executed by ABB Ltd an Indian company under supervision of the assessee. The assessee remains responsible for execution of full contract. It has provided a contract performance security and the risks in the execution of the contract are borne by the assessee. This shows that the equipment sale would not be completed till the satisfactory performance and delivery of the whole system to Power Grid. The assessee is the contractor of the contract. The contract was awarded to the assessee. The responsibility for successful completion of project lies with the assessee. The contract documents states as under: WHEREAS the Employer is desirous to get the works for 400kV/220kV Navasari (New) GIS Substation (hereinafter called the "Project") executed by the Contractor, and invited bids for the same and has accepted the bid of ABB Switzerland Limited, Switzerland, submitted by them vide proposal ref. no. PTHS-V080885 dat....
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....ABB India Ltd, a sister concern of the assessee. The arrangement is basically an attempt to evade taxes in India by adopting colourable devise The assessee got the entire contract an subcontracted the on-shore services to its Indian associate enterprises. The only difference is that instead of directly making the contract with the Indian Associate Enterprise (AE), the assessee requested the Powergrid Corporation to enter into contract with its Indian associate enterprises (AE). The assessee requested the Powergrid Corporation to enter into contract with its Indian Associate Enterprises (AE), the assessee requested the Powergrid Corporation to enter into contract with its Indian AE. While the assessee retained the off--shore supply, the other two aspects of the work was assigned to the Indian counterpart at its behest. However, as per the-agreement, the entire responsibility for installation and, commissioning, testing etc'. lies with the assessee only. The actual nature of contract is more important tool to arrive at the actual nature of transactions. In this case, the assessee got the contract from a Government of India body i.e. The Power Grid Corporation of India Ltd. The....
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....er section 147 is based on the wrong presumption of facts. In the 'reasons', he has referred to contract of Navsari Project, whereas in this year the assessee had undertaken the project at New Delhi, which has been mentioned in the return of income. The income from Navsari contract has not even been brought to tax by the AO in his assessment order. This goes to show that there is variance of facts and material on which 'reasons' have been recorded and in the assessment order which has been passed in pursuance thereof. No addition has been made on the basis of the contract referred to in the 'reasons recorded,' hence the reasons are completely germane from the addition as well as the assessment. Further, from the records it can be seen that, the assessee vide letter dated 21.10.2011, in response to the show cause notice has furnished the copy of the contract of before the AO. This is evident from said letter appearing in paper book at pages 61 and 62. This inter-alia means that, at the time of recording the 'reasons' he did not even had the access to the contract, then how can he entertain reason to believe. Thus, the whole exercise of acquiring the jurisdiction by the AO is merely ....
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....elhi Project contract with him at the time of recording the "reasons" and, therefore, to presume that, he by mistake took note of Navsari project contract is absolutely baseless. Thus, he submitted that, the entire reopening is based on wrong presumption of facts and the "reasons recorded" on factually incorrect facts do not meet the requirement of law and same should be quashed. Finally, on similar proposition, he relied upon the following three decisions of the Tribunal: (i) Addl. DIT vs. Black Batch Piachird Inc.; ITA No.3934/M/2007, order dated 10.07.2013; (ii) H V Transmissions Ltd vs. ITO in ITA No.2230/M/2010, order dated 07.10.2011; and (iii) Delta Airlines Inc. vs. ITO in ITA 3476/Mum/2008 order dated 30.11.2012. 8. On the other hand, the Ld. DR strongly relying upon the order of the DRP on this score submitted that, here in this case, the return has been accepted under section 143(1) and no scrutiny assessment has been passed under section 143(3), therefore, in view of the Explanation 2 to section 147 there is deemed case for reopening. This is a clear cut case of under statement of income by the assessee. The mentioning of Navsari Project of September 2009 is o....
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....of income, the assessee had disclosed income mainly from two streams, firstly, royalty/ FTS and secondly, training fees received form Powergrid Corporation of India Ltd. in pursuance of the project of installing of substation package at New Delhi. In the return of income the assessee had duly stated that, so far as the income from offshore supply is concerned, the same is not taxable in India because, the sale was concluded outside India on principal to principal basis, and relied upon CBDT circular and Supreme Court decisions. Regarding other limbs of the project, the assessee has not disputed the tax liability and offered it for tax in return of income. The disclosure made in the return of income in this regard has already been incorporated above. The said return of income has been duly processed and accepted under section 143(1), therefore, the said income stood assessed in the aforesaid manner and had attained finality. After the completion of assessment in this manner the case has been sought to be reopened u/s 147 by issuance of notice dated 05.03.2011 u/s 148. From the perusal of the "reasons recorded" as incorporated above, it is seen that, the first part consists of inform....
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....opinion of AO but it must also be based on a foundational fact and material. The Courts have held that, though sufficiency of material and belief entertained by the AO may not be gone into but it has to be seen that it must be base on cogent and relevant material and is rational belief entertained in a good faith. 11. Before us, the Ld. DR has submitted that, in view of Explanation 2 clause (b) wherein, if it is noticed by the AO that the assessee has understated the income then it is a deemed case of escapement of assessment and further here it is a case of assessment under section 143(1) therefore, principle laid down by the Hon'ble Supreme Court in the case of CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., reported in [2007] 291 ITR 500 is fully applicable. First of all, the Hon'ble Supreme Court in the said case has held that, at the stage of issuance of notice under section 148, the AO must have 'reason to believe' that income chargeable to tax has escaped the assessment and at that stage established fact that income has escaped assessment is not required. However, the basic condition which needs to be satisfied is, whether there is any reason to believe or not. This precise ....
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....evant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction." The Supreme Court held that so long as the ingredients of s. 147 are fulfilled, the AO is free to initiate proceedings under s. 147 and failure to take steps under s. 143(3) will not render him powerless to initiate reassessment proceedings even when an intimation under s. 143(1) had been issued. In other words, when an intimation has been issued under s. 143(1), the AO is competent to initiate reassessment proceedings provided that the requirements of s. 147 are fulfilled. In such a case as well, the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment. Xxxx xxxx xxxx xxxxx xxxx xxxxx xxxx xxx xxx xxx xxx xxx 18. For all these reasons, it is evident that there was absolutely no basis for the first respondent to form a belief that any income chargeable to tax has escaped assessment within the meaning of the substantive provisions of s. 147. Explan....
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....elieve' that income has escaped assessment is based on palpably erroneous reasons sans any tangible material or information, therefore, such a reopening based on such wrong assumption of fact has to be quashed at the threshold in view of Hon'ble Delhi High Court. Accordingly, we agree with the argument of Senior Counsel and hold that in the present case "reasons recorded" do not meet the requirement of law and do not confer the jurisdiction to reopen the case under section 147 and accordingly entire proceedings under section 148 is held as void ab initio and same is hereby quashed. Consequently, the entire proceeding initiated by notice u/s 148 is held as null and void and therefore, the entire discussion on merits has been rendered purely academic hence, no adjudication is required. Accordingly the appeal of the assessee is treated as allowed. 13. In AY 2009-10 also, exactly similar "reasons" have been recorded, which for the sake of ready reference is reproduced hereunder:- "The e-return of income in the case was furnished on 25.09.2009 disclosing a total income of Rs. 2,02,40,140/-. The case was not selected for scrutiny assessment and no assessment order u/s 143(3) was passe....
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....o get the works for 400kV/220kV Navasari (New) GIS Substation (hereinafter called the "Project") executed by the Contractor, and invited bids for the same and has accepted the bid of ABB Switzerland Limited, Switzerland, submitted by them vide proposal ref. no. PTHS-V080885 dated 07/09/2009 read along with discount letter dated 07/01/2009. ABB Switzerland Limited, Switzerland under the terms of their proposal have requested POWERGRID to award the Off-shore Contract for the Project on them and have further proposed M/s. ABB Limited, 14, Masthura Road, Faridabad, Haryana, India (ABB) as their Assignee for the purpose of executing the On Shore Supply Contract and on Shore Services Contract and furnished ABB India's written unequivocal consent vide their letter ref PTHS-V080885 dated 16.12.2008 (enclosed in their bid) to work as Employer's independent Contractor, on the terms and conditions as laid clown in the Bidding Documents. WHEREAS the assignment proposed as above by ABB-SA has been accepted by POWERGRID, subject to the condition that ABB-SA shall be overall responsible and liable for the execution of all the three Contracts irrespective of the fact that POWERGRID will....