TaxTMI 
TaxTMI 
2011 (8) TMI 1276
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....02,34,840/- disclosing its total income on the basis of income returned and assessed in the preceding years. The petitioner declared its gross revenues at US$ 25,406,750/- and offered revenues of US$ 871,694/- for inside India activities and revenue of US$ 1,63,695/- for outside India operations @ 10% and 1% respectively. The income offered by the petitioner was under the presumptive scheme under the Act by adopting income @ 10% for revenues earned inside India and @ 1% for revenues accrued outside India. The return was processed under Section 143(1) of the Act, but, subsequently, it was selected for scrutiny. The Assessing Officer issued a notice dated 28th June, 2004 under Section 142 (1) of the Act directing the petitioner to furnish various details and information. The information sought by the Assessing Officer is as under :- i. Copy of the work order / contract. ii. State the reason as to how article 11 of the DTAA is available. iii. Detail of employees who came to India during the relevant assessment period, and whether returns in respect of these have been filed. iv. A certificate stating period of stay of the employees during the last th....
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....s been perused with the Article 7 Para 3 which says "In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere." 6. During the financial year under consideration the assessee received revenues from ONGC vide contract No.ZA WELL PLATROM (ZA-PWW) Project (Job No.37) and contract No.MRBC/E&C/MM/ZA-WPP/02/2000. In the previous assessment years the gross total income of the assessee was arrived at after allowing sub-contractors & other cost as deduction from the gross receipts (on which tax has been deducted at source) and on the balance amount, 10% was estimated as taxable profits of the assessee under Article 7(3). The provision of Article 7(6) of the DTAA provides that profit of PE shall be determined by the same method year by year unless there is good and sufficient reasons to the contrary. Therefore, for this year also assessment is being completed on the same method as adopted in the assessee's ....
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.... of the same for taxation. As the return of the income has been filed in view of the provisions of DTAA and the assessee was supposed to file the P&L A/c and Balance Sheet alongwith return of income which has not been filed. The assessee's incomes from outside India is required to be brought to tax in view of the decision of Hon'ble Supreme Court in the case of Hyundai Heavy Industries wherein it has been observed that "the attraction rule implies that when an enterprise (GE) sets up PE in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can tax all profits from the GE derives from the source country whether though PE or not. It is the act of setting out a PE which triggers the taxability of transaction in the source State and other applicable ruling of the Hon'ble Court". Keeping in view of above, I have reasons to believe that income of the assessee as alleged to have earned outside India has escaped assessment as the same has been offered to tax only 1% of the gross revenues whereas the same should have been assessed in view of the provision of the DTAA. The income escaping assessment is mor....
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.... disclosed by the assessee being done inside India and outside India was not divisible on account of the fact that the contract executed was a turnkey contract which was signed and executed in India and that the assessee had misled the Income Tax Department in thinking that there were two separate contracts. It was further contended that the assessee had misled the department that it does not have a Permanent Establishment (P.E.) in India whereas it had a P.E. in India for negotiation and execution of the contract. It was further pointed out that the assessee had misled the department into thinking that the inside India works started only at the time of installation, whereas the projects started from the day the agreement was executed and therefore there was a clear cut failure on the part of the assessee to disclose fully and truly all material facts. It was submitted that in view of the decision of the Supreme Court in the case of Commissioner Income Tax & another Vs. Hyundai Heavy Industries Co. Ltd. 291 I.T.R. 482 (SC), the P.E. of the assessee came into existence before the project started and none of the material was supplied to ONGC outside India and in fact the title of the....
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....at the petitioner has an alternative remedy to challenge the assessment order before the Tribunal and that the writ petition has been rendered infructuous. 12. On the merits of the case, the learned counsel for the Income Tax Department submitted that there is no requirement to furnish reasons while issuing a notice under Section 148 of the Act and that reasons so recorded for reopening the proceedings were duly supplied to the petitioner. The learned counsel for the department further submitted that in the reasons recorded for reopening the proceedings, it was sufficient for the Assessing Officer to record that he has reasons to believe that the income chargeable has escaped assessment and that it was not necessary that the reasons should record that the assessee had failed to disclose fully and truly the material facts necessary for his assessment. In support of his submission, the learned counsel for the department placed reliance upon the decision of the Supreme Court in Calcutta Discount Co. Ltd. Vs. Income-Tax Officer, Companies District I, Calcutta & another, 41 I.T.R. 191. The learned counsel further submitted that the Assessing Officer, while passing the assessment orde....
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.... 16. The matter could not be decided and the interim order was extended from time to time. On 18th September, 2010, the interim order was extended till the disposal of the writ petition. The order dated 18.09.2010 is extracted hereunder:- "Mr. C. S. Agarwal, the learned senior counsel for the petitioner. Mr. Arvind Vashist, the learned counsel for the respondents. Heard the learned senior counsel for the petitioner at length. The hearing is not concluded. List this matter for further hearing on 05th October, 2010. Interim order, if any to continue till the disposal of the writ petition." 17. The matter, at that stage, was pending before the Dispute Resolution Panel. It transpires that the Dispute Resolution Panel issued certain directions, by its order dated 30th September, 2010, to the Assessing Officer, pursuant to which, the Assessing Officer passed a final assessment order dated 29th October, 2010 alongwith a notice of demand under Section 156 of the Act. The said assessment order and the notice of demand was passed in gross violation of the interim order dated 01st July, 2010 by which the Assessing Officer was restrained from passing any ....
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.... the order of the High Court should not be permitted to hold good." 20. In Gurunath Manohar Pavaskar Vs. Nagesh Siddappa Navalgund AIR 2008 SC 901, the Supreme Court held that a Court, in exercise of its inherent jurisdiction under Section 151 of the Code of Civil Procedure, 1908, in the event of coming to the conclusion that a breach to an order of restraint had taken place, may bring back the parties to the same position as if the order of injunction had not been violated. The Supreme Court held that any order passed by an authority having knowledge of the interim order of the court, was of no consequence and that the said order remained a nullity in the eyes of law. The Supreme Court held that the order passed by the State Government in contravention of the interim order remains unenforceable and in-executable. 21. In P.K. Nair Vs. I.T.O. A-Ward Alwaye & others 90 I.T.R. 512 (Kerala), it was held :- "We have already referred to the question whether we will justified in interfering in view of the assessment orders having been passed for the five years after we issued notice on this petition. We think the procedure will have to be following by us. Any assessments co....
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....he relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1 : Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanatio....
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.... time limit for making the assessment, reassessment or recomputation as specified sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case - (a) where a return has been furnished during period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) Subsequently a notice has been served under sub-clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. [Explanation. - For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.] (2) The Assessing Of....
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....that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Division Bench of this Court held that it is the failure or omission on the part of the assessing authority, which does not lead in any manner to constitute failure or omission on the part of the assessee entitling them to invoke Section 147 of the Act, after the prescribed period of four years. It was further held by the Division Bench of this Court that:- "The submission of the learned counsel is devoid of merit for this reason that the reason or ground for reopening of assessment in terms of the proviso to Section 147 are totally non-existent. According to our reasoning, we have addressed only the absence of ground and not the sufficiency. Learned counsel for the respondents could not satisfy that there was any failure on the part of the assessee as envisaged by the proviso to Section 147 or in any manner by suppression or omission, he took advantage and escaped the assessment." 28. In Commissioner of Income-Tax and another Vs. Saipem SPA [2008] 300 ITR 133, a Division Bench of this Court held that if there was no fault on the part of....
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.... the Assessing Officer could have jurisdiction to issue a notice under Section 148 of the Act for reassessment after the expiry of the period of four years. In the absence of recording such reasons that the assessee has failed to disclose fully and truly all material facts necessary for the assessment, no reassessment proceedings could be initiated and, on this short ground, the notice under Section 148 of the Act could not be sustained. The court further finds that the reasons cannot be supplemented in the order while rejecting the objections filed by the petitioner. The reasons has to be recorded prior to the stage of issuance of notice under Section 148 of the Act and that the reason to believe or the satisfaction recorded under Section 148 of the Act cannot be supplemented by the Assessing Officer in a subsequent order. The Supreme Curt in the case of Mohinder Singh Gill & Another Vs. The Chief Election Commissioner, New Delhi & others 1978 (1) SCC 405 held:- "8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reas....
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....rtment that the PE came into existence even before the sale took place outside India. Similarly, in the present case, there was no allegation made by the Department. that the price at which ONGC was billed/invoiced by the assessee for supply of fabricated platforms included any element for services rendered by the PE. In the present case, we are concerned with assessment years 1987-88 and 1988-89. Therefore, we are not inclined to remit the matter to the adjudicating authority. We reiterate, in the circumstances, not all the profits of the assessee company from its business connection in India (PE) would be taxable in India, but only so much of profits having economic nexus with PE in India would be taxable in India. To this extent, we find no infirmity in the impugned judgment of the Tribunal. Accordingly, we are of the view that the Tribunal was right in holding that profits attributable to the Korean Operations was not taxable in view of Article 7 of CADT." 33. A perusal of the reasons recorded by the Assessing Officer for reopening the assessment proceedings under Section 148 of the Act which has also been extracted earlier clearly indicates that the reassessment proceedings....
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....unts to a change of opinion. The Gujarat High Court held :- "The only question that would then survive would be whether there was any failure on the part of the petitioner-assessee to disclose fully and truly all material facts necessary for the assessment. Though in the reasons recorded, the respondent has stated so, apparently, the said statement does not merit acceptance for the simple reason that if all material facts had not been fully and truly disclosed by the assessee, there was no occasion for the Assessing Officer to frame the assessment under section 143 (3) of the Act by allowing the claim of the assessee. In fact, the law, as it then stood was understood identically both by the assessee and the Assessing Officer. Merely because subsequently the apex court pronounced the law to be otherwise, on the date of filing of the return of the income when the assessee made a claim for deduction, the claim could not be termed to be either lacking in material particulars or could not be termed to be untrue. In other words, all the material facts were fully disclosed and no false facts were stated in support of the claim made. The reasons recorded themselves show that the A....
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.... 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act the judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the assessing officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi judicial function to take benefit of its own wrong." 37. The aforesaid decision was affirmed by the Supreme Court in Commissioner of Income Tax Vs. Kelvinator of India Ltd., 320 ITR 561 wherein the Supreme Court held that the "reasons to believe" indicated in the notice u/s 148 was a mere change of opinion and that there was no tangible material to come to a conclusion that there was a escapment of income from the assessment. 38. In Consolidated Photo and Finvest Ltd. Vs. Assistant Commissi....