TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 571
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....ion of Ld. AO of taxing receipts for IT support services provided to its Indian affiliates amounting to Rs.19,725,038 as Fees for Technical Services (FTS) within the meaning of Article 12 of the Double Taxation Avoidance Agreement between India and Sweden ('tax treaty between India and Sweden') read with the protocol thereto. 3. Ground 3: Without prejudice to Ground 1 above, on the facts and circumstances of the case, and in law, the Ld. DRP erred in upholding the action of Ld. AO of taxing receipts for IT Support Services provided to its Indian affiliates amounting to Rs.19,725,038/- as Royalty within the meaning of Article 12 of the tax treaty between India and Sweden. It is prayed that the addition made by the Ld. AO and confirmed by the Ld. DRP be deleted. 3. The first jurisdictional issue which arises by way of ground of appeal No.1 is against reopening of assessment without any reason to believe as required by the provisions of section 147 of the Act. 4. Briefly, in the facts of the case, the assessee had filed the return of income declaring income of Nil on 30.09.2008. Notice under section 148 of the Act on 28.03.2013 was issued and served upon the assessee. In respo....
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....t in exercise of jurisdiction by the Assessing Officer under section 147/148 of the Act. He further pointed out that on similar tangible material and recording of reasons to believe, the case of the assessee was reopened in assessment year 2005-06, which was dismissed for low tax effect. In assessment year 2006-07 also, similar plea was raised of low tax effect and hence, the same was also dismissed. In assessment year 2007-08 though the issue of jurisdiction under section 148 of the Act was against the assessee, the issue on merits was decided in favour of assessee, hence no appeal has been filed for that year in assessment year 2008-09. The learned Authorized Representative for the assessee pointed out that the issue stands covered in favour of assessee by the order of Tribunal in DDIT (IT) Vs. Sandvik Information Technology AB, in ITA No.128/PUN/2014 along with CO No.10/PUN/2015, relating to assessment year 2005-06, order dated 28.12.2016. He further pointed out that combined DRP order was passed in the case of three sister concerns and it was held to be not valid in the case of Sandvik Information Technology AB. He further pointed out that the Assessing Officer at page 2 has re....
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....o be review as laid down by the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). 8. The learned Authorized Representative for the assessee in rejoinder pointed out that proviso to section 147 of the Act was not applicable since it would become operatable only if the case of assessee falls in main section. He stressed that there has to be 'reason to believe' for escapement of income and in the absence of the same, there is no merit in exercise of jurisdiction. He further referred to the order of DRP and pointed out that in the said order, the same was not quashed for assessment proceedings being reopened beyond four years. He further stressed that requirement of section was of tangible material, which remains to be sacrosanct. He further referred to the order of Tribunal in the case of sister concern and pointed out that the Tribunal had not made any distinction before or beyond four years and had gone on the principle of no tangible material. He further pointed out that receipts were not offered to tax but the same were declared and ample disclosure was made in this regard. 9. We have heard the rival contentions and perused the record. The iss....
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....re 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 brought in the reasons recorded on the basis of which valid reasons to believe could be formed. The DRP held that it was case of re-appraisal of existing facts. It was further held by the DRP that reopening of assessment without new material was not permissible even if the original asse....
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....f 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 provisions of section 147 of the Act can be triggered. There is no merit in the reasoning of the Revenue that where no assessment under section 143(3) of the Act has been completed and the assessment is only completed under section 143(1) of the Act and since the assessee has failed to disclose fully and truly all materi....
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....mpleted 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 under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt d....
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.... 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 that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and....
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....nd 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 Investment Co. Ltd. (Supra) makes a specific reference to its decision in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) to hold that where the assessment has been completed by Intimation under Section 143(1) of the Act, there can be no question of change of opinion. 4. We further find that the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has not dealt with the issue whether before ....
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....ipts 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 benefit. Sr.No. Name and address of the associated enterprise with whom the international transaction has been entered into Description of such mutual agreement or arrangement Amount paid/received or payable/receivable in the transaction Method used for determining the arm's length price (See section 92C(1) as per books of account as computed by the assessee having regard to the arm's length price (Rs) (Rs) &nbs....