National Petroleum Construction Co., Gurgaon V. ADdl. CIT, Dehradun

ITA 4106/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53176 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 14-11-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 09-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWANI MAHAJAN
• Assessee Lawyers: C S AGGARWAL; R P MALL
• Keywords: Permanent establishment; Reasonable cause; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

ITA NO. 4106/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4106/DEL/2011 A.Y. : 2002-03 M/S NATIONAL PETROLEUM CONSTRUCTION COMPANY, C/O PRICE WATER HOUSE, COOPERS PVT. LTD., BUILDING NO. 10, FLOOR-17, TOWER-C, DLF CYBER CITY, GURGAON-122002 (PAN: AAACN7799J) VS. ADDL. DIRECTOR OF INCOME TAX (INTL. TAXATION), DEHRADUN 13-A, SUBHASH ROAD, DEHRADUN (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. C.S. AGGARWAL, SR. ADVOCATE & SH. R.P. MALL, ADVOCATE DEPARTMENT BY : SH. ASHWANI MAHAJAN, C.I.T. (D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. ASSESSING OFFICER DATED 29.10.2010 AND PERTAI NS TO ASSESSMENT YEAR 2002-03. 2. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THAT THE ORDER OF ASSESSMENT PASSED BY THE LD. ASSESSING OFFICER ('AO') DATED OCTOBER 29, 2010 AND THE ISSUE OF NOTICE OF DEMAND IN PURSUANT THERETO IS NULLITY IN THE EYES OF LAW, AS THE ASSESSMENT ORDER WAS FRAMED IN VIOLATION OF THE ITA NO. 4106/DEL/2011 2 ORDER DATED JULY 1, 2010 PASSED BY THE HON'BLE HIGH COURT OF UTTRAKHAND DIRECTING THE AO NOT TO FRAME FINAL ASSESSMENT. THE ORDER OF ASSESSMENT THUS MADE IS WIT HOUT JURISDICTION WHICH DESERVES TO BE QUASHED. 2. THAT WITHOUT PREJUDICE AND IN THE ALTERNATIVE TH ERE HAD BEEN NO VALID ASSUMPTION OF JURISDICTION UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961 ('ACT') AND THUS THE PROCEEDIN GS INITIATED BY A NOTICE DATED MARCH 31, 2009 ISSUED U /S 148 OF THE ACT WAS UNTENABLE BOTH ON FACTS AND IN LAW. 3. THAT THE ASSESSMENT FRAMED BY THE AO VIDE IT AS SESSMENT ORDER DATED OCTOBER 29,2010 AND SERVED ON THE APPEL LANT ON NOVEMBER 1, 2010 ALONGWITH THE NOTICE OF DEMAND U/ S 156 OF THE ACT EVEN WITHOUT OBTAINING A LEAVE OF TH E HON'BLE HIGH COURT OF UTTRAKHAND WHICH HAD DIRECTED THE AO NOT TO GIVE EFFECT TO THE DRAFT ASSESSMENT ORDER, WITHOUT O BTAINING THE LEAVE OF THE COURT (WHICH WAS NEITHER OBTAINED NOR GRANTED) IS COMPLETE NULLITY IN THE EYES OF THE LAW. 4. THAT THE ASSESSMENT FRAMED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT IS WHOLLY ARBITRARY AND CONT RARY TO THE LAW AND IS BASED ON A MERE CHANGE OF OPINION. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THERE IS NO ESCAPEMENT OF INCOME BY THE APPELLANT A S ALLEGED BY THE LD. AO IN THE REASONS RECORDED AND A LSO IN THE ORDER OF ASSESSMENT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE IMPUGNED ORDER PASSED UNDER SECTION 143(3) READ WITH ITA NO. 4106/DEL/2011 3 SECTION 147 AND 144C OF THE ACT IS BASED UPON CONJEC TURES, SURMISES, PRECONCEIVED NOTIONS AND INCORRECT APPLICA TION OF LAW AND IT SHOULD BE SET ASIDE AND QUASHED AS THE P ER THE JUDGEMENT OF HON'BLE HIGH COURT OF UTTRAKHAND DATED AUGUST 20,2011. 7. THAT THE INCOME COMPUTED AT ` 30,80,20,470 AS AGA INST THE INCOME ASSESSED AT ` 5,02,16,381 UNDER SECTION 143( 3) VIDE ORDER DATED NOVEMBER 24, 2004 IS HIGHLY ARBITRARY AN D IS BASED ON NO VALID MATERIAL AND THAT OTHERWISE TOO, T HE VARIOUS ADVERSE OBSERVATIONS MADE BY THE LD. AO IN THE ORDER OF REASSESSMENT, NAMELY - 1) NO PROFIT AND LO SS ACCOUNT SUBMITTED BY THE APPELLANT, 2) THE BIFURCATI ON OF REVENUES INTO INSIDE INDIA AND OUTSIDE INDIA WAS AN ATTEMPT TO MISLEAD THE DEPARTMENT, 3) THE APPELLANT ALSO MIS LEAD THE DEPARTMENT THAT IT HAD NO PERMANENT ESTABLISHMENT ('PE') IN INDIA, AND 4) TITLE IN THE FABRICATED PLAT FORM WAS TRANSFERRED IN INDIA, ARE FACTUALLY INCORRECT AND A CLEAR CASE OF MIS-APPRECIATION OF FACTS. 8. THAT THE DIRECTIONS OF THE DISPUTE RESOLUTION PANE L ('DRP') DESERVE TO BE SET ASIDE AS THE SAME ARE COMPLETE DISR EGARD OF THE EVIDENCES PROVIDED BY THE APPELLANT AND MATE RIAL AVAILABLE ON RECORD. 9. THAT THE INTEREST LEVIED UNDER SECTION 234B, 23 4C AND 234D ARE UNSUSTAINABLE. ITA NO. 4106/DEL/2011 4 10. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE APP ELLANT SEEKS TO RAISE THE FOLLOWING GROUNDS: A) THE LD. AO HAS ERRED IN HOLDING ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THAT THE APPELLANT HAS A FIXED PLACE 'PERMANENT ESTABLISHMENT ' ('PE') IN INDIA UNDER ARTICLE 5 OF THE INDIA UAE TAX TREATY ('THE TREATY') IN THE FORM OF PROJECT OFFICE IN INDIA. B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO ERRED IN HOLDING THAT THE APPELLANT HAS A DEPENDENT AGENT PE IN INDIA IN THE FORM OF M/S ARCADI A SHIPPING LTD. ('ARCADIA'). C) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO ERRED IN HOLDING THAT THE APPELLANT HAS A CONSTRUCTION/ASSEMBLY PE UNDER ARTICLE 5.2(H) OF THE TREATY. D) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN HOLDING THAT THE CONTRACT IS NOT A DIVISIBLE CONTRACT AND THE CONTRA CT CONSIDERATION CANNOT BE BIFURCATED INTO INSIDE INDI A AND OUTSIDE INDIA REVENUES. IT IS THUS, THE LD. AO HAS ERRED IN PROPOSING THAT THE ENTIRE PROFITS FROM THE WORK UNDER THE CONTRACT ARISE IN INDIA AND ARE LIABLE TO TAX IN INDIA. E) THE LD. AO HAS GROSSLY ERRED IN IGNORING THE PRI NCIPLES OF TAXATION LAID DOWN BY THE HON'BLE APEX COURT IN THE ITA NO. 4106/DEL/2011 5 CASE OF ISHIKAWAJIMA HARIMA'S : 288 ITR 408 (SC) IN RESPECT OF TAXABILITY OF TURNKEY CONTRACT WHERE DIFFERENT PARTS OF THE CONTRACT IS TO BE CARRIED OU T IN DIFFERENT TAX JURISDICTIONS. F) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN HOLDING TO TAX THE ENTIRE OUTSIDE INDIA REVENUES BY IGNORING THE ATTRIBUTION IN ACCORDANCE WITH ARTICLE 7(1) AND ARTICLE 7(2) OF TH E TREATY AND EXPLANATION 1 TO SECTION 9(1 )(I) OF THE ACT. G) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. AO HAS ERRED IN HOLDING THAT CONSIDERATION TOWA RDS THE DESIGN AND ENGINEERING IS COMPLETELY COVERED AS FEES FOR TECHNICAL SERVICES ('FTS') . H) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. AO HAS ERRED IN ESTIMATING 25% OF THE GROSS CONTRACT REVENUES AS INCOME TAXABLE IN INDIA IN THE HANDS OF THE APPELLANT. THE DETERMINATION OF TAXABLE PROFITS BY THE LD. AO IS ADHOC, EXCESSIVE, EXORBITA NT AND INCONSISTENT WITH THE ACCEPTED LEGAL POSITION. I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN HOLDING THAT THE APPELLANT HAS CREATED ITS OWN METHOD OF COMPUTATION FOR INSIDE INDIA REVENUES WITHOUT ANY LEGAL BASIS B Y IGNORING THAT THIS METHOD HAS BEEN DEVISED AND APPLIED BY THE TAX DEPARTMENT IN THE APPELLANT'S PAS T ASSESSMENTS. ITA NO. 4106/DEL/2011 6 J) THE LD. AO HAS ERRED IN HOLDING THAT THE APPELLAN T HAS NEITHER GOT ITS ACCOUNTS AUDITED NOR FURNISHED ANY AUDITED ACCOUNT AND THEREBY PROPOSING TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271 B OF THE ACT. K) THE LD. AO HAS ERRED IN INITIATING PROCEEDINGS U NDER SECTION 271(1)(C) OF THE ACT IN A MECHANICAL MANNER . PRAYER: IT IS THEREFORE PRAYED THAT IT BE HELD THAT: I) THE ORDER OF ASSESSMENT FRAMED UNDER SECTION 143 (3) READ WITH SECTION 147 AND 144C OF THE ACT IS A NULL ITY IN THE EYES OF LAW; II) THE INITIATION OF REASSESSMENT PROCEEDINGS UND ER SECTION 147 ARE WITHOUT JURISDICTION; III) THE REASSESSMENT MADE IS A REVIEW OF EARLIER CONCLUDED ASSESSMENT UNDER SECTION 143(3) I.E. A CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER THE LAW; IV) THE INCOME COMPUTED UNDER SECTION 143(3) READ W ITH SECTION 147 AND 144C OF THE ACT AT ` 30,80,20,470/- IS ARBITRARY AND WITOUT AUTHORITY OF LAW; AND V) THE ADVERSE OBSERVATIONS MADE AND THE FINDINGS RECORDED AND CHALLENGED UNDER GROUND 10 SHOULD BE SET ASIDE. ITA NO. 4106/DEL/2011 7 THE ABOVE GROUNDS OF APPEALS ARE WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY GROUNDS HEREIN OR ADD ANY FU RTHER GROUNDS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEARING OF THESE GROUNDS. 3. AT THE THRESHOLD, IT IS NOTED THAT THERE IS DELA Y OF 252 DAYS IN FILING THE APPEAL. THE REASONABLE CAUSE FOR THE DELAY HAS BEEN STATED TO BE PENDENCY OF A WRIT PETITION BY THE ASS ESSEE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT CHALLENGING THE V ALIDITY OF THE ASSUMPTION OF JURISDICTION IN THIS CASE. WE HAVE HEARD BOTH THE COUNSEL ON THE ISSUE OF CONDONATION OF DELAY. IN O UR CONSIDERED OPINION, THERE WAS A REASONABLE CAUSE FOR THE DELAY IN THIS REGARD. HENCE, WE CONDONE THE DELAY IN FILING THE APPEAL IN THIS REGARD. 4. AS REGARDS THE MERITS OF THE ISSUE, WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT HAS DECIDED THE WRIT PETI TION IN FAVOUR OF THE ASSESSEE BY HOLDING THAT REOPENING WAS NOT JUSTIFIE D. THE CONCLUDING PORTION OF THE HONBLE JURISDICTIONAL HIGH COURT DE CISION IN WRIT PETITION NO. 2192 OF 2009 VIDE ORDER DATED 20.8.2011 READS A S UNDER:- 39. IN LIGHT OF THE AFORESAID, THE COURT FINDS THA T THE ASSESSING OFFICER COMMITTED A MANIFEST ERROR IN REOPENING THE ASSESSMENT PROCEEDINGS UNDER SECTION 148 OF THE ACT. 40. FOR THE REASONS STATED ABOVE, THE NOTICE DATED 3 1 ST MARCH, 2009 ISSUED UNDER SECTION 148 OF THE ACT DO ES NOT COMPLY WITH PROVISO TO SECTION 147 OF THE ACT. THE ITA NO. 4106/DEL/2011 8 REASONS RECORDED DOES NOT INDICATE THAT THE ASSESSE E HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. CONSEQUENTLY, THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT CANNOT B E SUSTAINED AND IS QUASHED. THE PROCEEDINGS INITIATE D IN PURSUANCE OF THE NOTICE UNDER SECTION 148 OF THE ACT ARE WHOLLY ILLEGAL AND WITHOUT JURISDICTION AND CAN NOT BE EXECUTED SINCE THE FINAL ASSESSMENT ORDER AND TH E NOTICE OF DEMAND UNDER SECTION 156 OF THE ACT WAS ISSUED IN GROSS VIOLATION OF THE INTERIM ORDER OF T HIS COURT. THE SAME IS A NULLITY IN THE EYES OF LAW AND CANNOT BE ENFORCED. THE WRIT PETITION IS ACCORDING LY ALLOWED. IN THE CIRCUMSTANCES OF THE CASE, THE PA RTIES SHALL BEAR THEIR OWN COST. 41. BEFORE PARTING, THE COURT RECORDS AND CAUTION S THE PETITIONER THAT IT IS ALWAYS APPROPRIATE TO BRING ON RECORD SUBSEQUENT PROCEEDINGS INITIATED BY AN AUTHORITY AFTER THE FILING OF THE WRIT PETITION, AN D IF AN ORDER HAS BEEN PASSED BY AN AUTHORITY WHICH IS PRE-JUDICIAL TO THE INTEREST OF THE PETITIONER, THE SAME SHOULD BE BROUGHT ON RECORD WITH A SPECIFIC PRAYER FOR ITS QUASHING. IN THE PRESENT CASE, SUBSEQUENT PROCEEDINGS HAVE NOT BEEN BROUGHT ON RECORD, WHICH WAS HOWEVER NOT FATAL TO THE RESULT OF THE CASE, BU T, NONETHELESS IT HAS AN IMPACT ON THE ULTIMATE RESULT OF THE CASE. ITA NO. 4106/DEL/2011 9 5. FROM THE ABOVE, IT IS EVIDENT THAT HONBLE JURISDI CTIONAL HIGH COURT HAS HELD THAT PROCEEDING INITIATED IN PURSUAN CE OF THE NOTICE U/S 148 OF THE ACT WAS ILLEGAL AND WITHOUT JURISDICTION . HENCE, ASSESSMENT FRAMED IN THIS REGARD CANNOT BE SUSTAINED AND IS LIA BLE TO BE DISMISSED. HENCE, THIS APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/11/2011. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 18/11/2011 SRB COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES