M/s. AB Sandvik Materials Technology, Pune V. Deputy Commissioner of Income-tax,

ITA 489/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9463 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 22-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Assessee Lawyers: ADJOURNMENT REFUSED
• Keywords: Reopening of assessment; Double taxation relief; Permanent establishment; Tangible material; Difference of opinion; Tax effect; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 201(1); 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI , AM . / ITA NO S . 489 & 490 /P U N/20 1 6 / ASSESSMENT YEAR S : 200 7 - 08 & 2009 - 10 M/S. AB SANDVIK MATERIALS TECHNOLOGY, C/O SANDVIK ASIA PVT. LTD., MUMBAI - PUNE ROAD, DAPODI, PUNE 411012 . / APPELLANT PAN: AA DCA5374K VS. THE DY. COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION) , CIRCLE - 1, PUNE . / RESPONDENT / APPELLANT BY : ADJOURNMENT REFUSED / RESPONDENT BY : MS. NIRUPAMA KOTRU, CIT / DATE OF HEARING : 28 . 1 2 . 201 7 / DATE OF PRONOUNCEMENT: 12 . 0 1 . 201 8 / ORDER PER SUSHMA CHOWLA, JM: THE SE TWO APPEALS FILED BY THE ASSESSEE ARE AGAINST SEPARATE ORDER S OF D C IT ( TP ) , CIRCLE - 2(1), PUNE, BOTH DATED 17.02.2016 RELATI NG TO ASSESSMENT YEAR S 2007 - 08 AND 2009 - 10 PASSED UNDER SECTION 14 4C(13) R.W.S. 143(3) R.W.S. 147 OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 ITA NO S.489 & 490/PUN/2016 2 . THE ASSESSEE HAS RAISED THE FOLLOWING REVISED GROUNDS OF APPEAL: - 1. GROUND 1: ON THE FACTS AND CI RCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED DISPUTE RESOLUTION PANEL (LD.DRP) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER (LD.AO) IN REOPENING THE ASSESSMENT PROCEEDINGS WITHOUT ANY REASON TO BELIEVE AS REQUIRED BY THE PROVIS IONS OF SECTION 147. IT IS PRAYED THAT THE REOPENING INITIATED ARE INVALID AND VOID AND HENCE BE QUASHED. 2. GROUND 2: WITHOUT PREJUDICE TO GROUND 1 ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. DRP ERRED IN UPHOLDING THE AC TION OF LD. AO TO TAX RECEIPTS OF RS.17,41,740 AS ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF T HE INDIA - SWEDEN DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA OR THE TAX TREATY). IT IS PRAYED THAT THE ADDITION MADE BY THE LD. AO AND CONFIRMED BY THE LD. DRP BE DELETED. 3. THE ASSESSEE MADE AN APPLICATION FOR ADJOURNMENT. HOWEVER, THE ISSUE RAISED IN THE PRESENT APPEAL IS COVERED BY THE EARLIER ORDERS OF THE TRIBUNAL IN THE CASE OF CONNECTED ENTITIES AND HENCE ADJOURNMENT APPLICATION WAS REFUSED. WE PR OCEED TO DECIDE THE PRESENT APPEAL AFTER HEARING THE LD. DR FOR THE REVENUE. 4. THE ISSUE ARISING IN BOTH THE APPEALS FILED BY THE ASSESSEE RELATING TO DIFFERENT ASSESSMENT YEARS ARE SIMILAR AND WE PROCEED TO DECIDE THE APPEALS BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. HOWEVER, REFERENCE I S BEING MADE TO THE FACTS AND ISSUE IN ITA NO.489/PUN/2016. 5. THE FIRST JURISDICTIONAL ISSUE WHICH ARISES BY WAY OF GROUND OF APPEAL NO.1 IS AGAINST REOPENING OF ASSESSMENT WITHOUT ANY REASON TO BELIEV E AS REQUIRED BY THE PROVISIONS OF SECTION 147 OF THE ACT. 6. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FILED THE RETURN OF INCOME DECLARING INCOME OF NIL ON 13.11.2007. NOTICE UNDER SECTION 148 OF THE ACT ON 3 ITA NO S.489 & 490/PUN/2016 28.03.201 4 WAS ISSUED AND SERVED U PON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE VIDE ITS LETTER DATED 29.04.2014 SUBMITTED THAT THE ORIGINAL RETURN OF INCOME MAY BE CONSIDERED AS FILED IN RESPONSE TO THE SAID NOTICE. THE ASSESSEE REQUESTED FOR SUPPLY OF REASONS RECORDED FOR REOPENING THE ASSESSMENT. THE REASONS WERE COMMUNICATED TO THE ASSESSEE. THE REASONS FOR REOPENING ARE REPRODUCED AT PAGE 2 OF THE ASSESSMENT ORDER. IN REPLY, THE ASSESSEE OBJECTED TO THE REASONS RECORDED FOR REOPENING THE ASSESSMENT . THE ASSESSING OFFICER REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE VIDE OFFICE LETTER DATED 24.03.2015. THE FIRST ASPECT WHICH WAS NOTED WAS THAT THERE WAS NO ASSESSMENT UNDER SECTION 143(3) / 147 OF THE ACT IN THE CASE, PRIOR TO REOPENING. FURTHER, NOTICE UNDER SE CTION 148 OF THE ACT WAS VALIDLY ISSUED WHERE THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT IT WAS FIT CASE FOR REOPENING THE ASSESSMENT, SINCE THERE WAS ESCAPEMENT OF INCOME. THE ASSESSING OFFICER FURTHER HAD NOTED THAT THERE WAS TANGIBLE MATERIAL TO ENTERTAIN PRIMA FACIE BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED THE ASSESSMENT. THE REOPENING WAS ON THE BASIS OF MATERIAL WHICH WAS DEFINI TE AND NOT VAGUE AND FANCIFUL AND IN VIEW OF EXPLICIT REASONS, IT WAS FIT CASE FOR REOPENING , WAS THE OBSERVA TION OF THE ASSESSING OFFICER. THUS, T HE ASSESSING OFFICER IN VIEW OF THE DISCUSSION WAS OF THE VIEW THAT IT SUPPORT SERVICES PROVIDED BY ASSESSEE TO THE INDIAN ENTITY WERE IN THE NATURE OF FEE FOR TECHNICAL SERVICES AND WERE TAXABLE AS PER ARTICLE 12 OF DTAA OF INDIA AND SWEDEN AS WELL AS PER THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT. THE ASSESSING OFFICER PASSED DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD. (2007) 291 ITR 500 (SC) , HELD THAT REOPENING WAS VALID. THE ASSESSING OFFICER IN THIS REGARD PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT AND ALSO DECIDED THE ISSUE O N MERITS AGAINST THE ASSESSEE. 7 . THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF ASSESSING OFFICER. 4 ITA NO S.489 & 490/PUN/2016 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT IN THE YEAR UNDER APPEAL, IT WAS CASE OF ESCAPEMENT OF INCOME. OUR ATTENTION WAS DRAWN TO THE REASONS RECORDED FOR REOPENING THE ASSESSMENT REPRODUCED IN ASSESSMENT ORDER . HE FURTHER STATED THAT IN THE ABSENCE OF ANY ASSESSMENT COMPLETED IN THE CASE OF ASSESSEE, WHERE THE ASSESSEE HAS FAILED TO OFFER INCOME TO TAX, THEN IT CANNOT BE HELD TO BE REVIEW AS LAID DOWN BY THE HON'BLE SUPREME COURT IN ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD. (SUPRA). 9. ON PERUSAL OF RECORD, PAPER BOOK FILED BY THE ASSESSEE AND AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, WE FIND THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS APPLICABILITY OF PROVISIONS OF SECTION 147 OF THE ACT. THE SAID SECTION PROVIDES THAT IN CASES WHERE THERE IS ANY ESCAPEMENT OF INCOME, WHICH COMES TO THE KNOWLEDGE OF THE ASSESSING OFFICER, ON THE B ASIS OF SOME TANGIBLE MATERIAL, THEN THE SAID PROCEEDINGS CAN BE REOPENED IN ORDER TO ASSESS THE ESCAPEMENT OF INCOME IN THE HANDS OF ASSESSEE. WE FURTHER FIND THAT SIMILAR ISSUE HAS ARISEN IN THE CASE OF SISTER CONCERN OF THE ASSESSEE, WHEREIN THE ISSUE HAS BEEN DELIBERATED UPON AND IT HAS BEEN HELD THAT IN THE ABSENCE OF ANY TANGIBLE MATERIAL TO COME TO FINDING OF ESCAPEMENT OF INCOME, THERE IS NO MERIT IN RE - ASSESSMENT PROCEEDINGS INITIATED IN THE CASE OF ASSESSEE. WE MAKE REFERENCE TO THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. SANDVIK SYSTEM DEVELOPMENT AB VS. DDIT (IT) IN ITA NO.464/PUN/2015, RELATING TO ASSESSMENT YEAR 2008 - 09, ORDER DATED 10.11.2017, WHEREIN IT WAS HELD AS UNDER: - 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. T HE ISSUE RAISED IN THE PRESENT APPEAL IS APPLICABILITY OF PROVISIONS OF SECTION 147 OF THE ACT. THE SAID SECTION PROVIDES THAT IN CASES WHERE THERE IS ANY ESCAPEMENT OF INCOME, WHICH COMES TO THE KNOWLEDGE OF THE ASSESSING OFFICER, ON THE BASIS OF SOME TA NGIBLE MATERIAL, THEN THE SAID PROCEEDINGS CAN BE REOPENED IN ORDER TO ASSESS THE ESCAPEMENT OF INCOME IN THE HANDS OF ASSESSEE. THE ASSESSEE HAD FURNISHED THE RETURN OF INCOME IN TIME DECLARING TOTAL INCOME AT NIL. THE ASSESSING OFFICER RECORDED HIS REA SONS FOR REOPENING THE ASSESSMENT ON THE GROUND THAT IT WAS NOTICED FROM THE SUBMISSIONS MADE DURING THE ASSESSMENT FOR ASSESSMENT YEAR 2005 - 06 THAT THE ASSESSEE HAD RECEIVED IT SUPPORT FEES OF RS.1.94 CRORES AND LICENCE FEES OF RS.3,10,396/ - FROM SANDVIK ASIA PVT. LTD. IN ASSESSMENT YEAR 2008 - 5 ITA NO S.489 & 490/PUN/2016 09, BUT THE SAME WERE NOT OFFERED FOR TAX. THE REASONS MENTIONED THAT FOR ASSESSMENT YEAR 2005 - 06, THE ASSESSING OFFICER HAD CONCLUDED THAT RECEIPTS UNDER THE HEAD IT SUPPORT FEES RECEIVED BY THE ASSESSEE FROM SAND VIK ASIA PVT. LTD., WERE IN THE NATURE OF ROYALTY AND FEES FOR TECHNICAL SERVICES AND TAXABLE AS PER ARTICLE 12 OF DTAA OF INDIA AND SWEDEN AS WELL AS SECTION 9(1)(VI) & 9(1)(VII) OF THE ACT. THE ASSESSING OFFICER FURTHER HOLDS THAT ON EXAMINATION OF NATU RE OF PAYMENTS MADE TO THE ASSESSEE AS PER AGREEMENT DATED 01.04.2002, IT COULD BE CONCLUDED THAT THE PAYMENTS RECEIVED BY THE ASSESSEE CONSTITUTE ROYALTY AND FEES FOR TECHNICAL SERVICES, AS PER SECTIONS OF THE ACT AS WELL AS ARTICLE 12 OF THE DTAA BETWEEN INDIA AND SWEDEN. REFERENCE WAS MADE TO SEVERAL DECISIONS IN THIS REGARD AND ALSO TO THE ORDER UNDER SECTION 201(1) AND 201(1A) OF THE ACT IN THE CASE OF SANDVIK ASIA PVT. LTD. FOR ASSESSMENT YEAR 2008 - 09, WHEREIN THE ASSESSING OFFICER HELD THAT THE PAYM ENTS RECEIVED CONSTITUTE ROYALTY AND FEES FOR TECHNICAL SERVICES. AFTER RECORDING AFORESAID REASONS FOR REOPENING THE ASSESSMENT, THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148 OF THE ACT. THE ASSESSEE FILED LETTER STATING THAT EARLIER RET URN OF I NCOME MAY BE TREATED AS FILED IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE ACT. THEREAFTER, THE ASSESSEE SOUGHT REASONS FOR REOPENING THE ASSESSMENT AND FILED OBJECTIONS. THE OBJECTIONS FILED BY THE ASSESSEE WERE REJECTED BY THE ASSESSING OFFICER A S THERE WAS NO ASSESSMENT UNDER SECTION 143(3)/147 OF THE ACT AND THE ASSESSING OFFICER WAS SATISFIED THAT THERE 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 HONBLE 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 UND ER 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. T HE 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 MATE RIAL 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 ASSESSMENT WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND ORDER WAS NOT PASSED UNDER SECTION 143(3) OF THE ACT. RELIANCE OF THE ASSESSING OFFICER ON ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD. (SUPRA) WAS FOUND TO BE MISPLACED , WHERE TH E CASE OF THE ASSESSING OFFICER WAS THAT THE HONBLE SUPREME COURT HAD DECIDED THAT IN CASE THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT, THE ASSESSING OFFICER IS EMPOWERED TO ISSUE NOTICE UNDER SECTION 148 OF THE ACT. RE LIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN ORIENT CRAFT LTD. VS. CIT (SUPRA) , HENCE REOPENING IN THE CASE OF THREE SISTER CONCERNS WAS HELD TO BE INVALID. THE REVENUE DID FILE AN APPEAL BEFORE THE TRIBUNA L IN THIS REGARD AND THE APPEAL WAS DISMISSED FOR LOW TAX EFFECT. SIMILARLY, IN ASSESSMENT YEAR 2006 - 07, SAME ISSUE WAS RAISED AND THE DRP DECIDED THE ISSUE IN FAVOUR OF ASSESSEE IN THE ABSENCE OF ANY FRESH MATERIAL AND THE APPEAL OF REVENUE WAS DISMISSED FOR LOW TAX EFFECT. IN ASSESSMENT YEAR 2007 - 08, THOUGH THE ISSUE OF REOPENING UNDER SECTION 148 OF THE ACT WAS DECIDED AGAINST THE ASSESSEE, BUT SINCE THE ISSUE ON MERITS WAS DECIDED IN FAVOUR OF ASSESSEE, NO APPEAL WAS FILED BY THE ASSESSEE OR THE REVEN UE. 11. NOW, COMING TO THE APPEAL IN ASSESSMENT YEAR 2008 - 09. THE ASSESSING OFFICER RECORDED REASONS FOR REOPENING ASSESSMENT ON THE BASIS OF REASONS RECORDED IN ASSESSMENT YEAR 2005 - 06. THE ASSESSING OFFICER VERY CATEGORICALLY STATES THAT INFORMATION C AME TO HIS KNOWLEDGE DURING PROCEEDINGS IN ASSESSMENT YEAR 2005 - 06 THAT THE ASSESSEE HAD RECEIVED IT SUPPORT FEES AND LICENCE FEES, WHICH HAS NOT BEEN OFFERED TO TAX. THE QUESTION WHICH ARISES BEFORE US IS WHETHER ANY TANGIBLE MATERIAL IS AVAILABLE WITH T HE ASSESSING OFFICER TO COME TO FINDING OF ESCAPEMENT OF INCOME. THE SECOND ASPECT OF THE ISSUE IS IN CASE NO ASSESSMENT 6 ITA NO S.489 & 490/PUN/2016 HAS BEEN COMPLETED UNDER SECTION 143(3) OF THE ACT, WHERE THERE IS ESCAPEMENT OF INCOME, PROCEEDINGS CAN BE REOPENED UNDER SECTION 147 /148 OF THE ACT KEEPING THE SPIRIT OF PROVISIONS WHICH ARE APPLIED IN THE PRESENT CASE. THE FIRST AND FOREMOST FOR INVOKING THE SAID PROVISIONS IS THE REASON TO BELIEVE OF ESCAPEMENT OF INCOME AND SUCH REASON TO BELIEVE HAS TO BE BASED ON TANGIBLE MATER IAL OR OTHERWISE THERE HAS TO BE LIVE LINK BETWEEN THE REASON TO BELIEVE AND ESCAPEMENT OF INCOME THEN ONLY THE PROCEEDINGS UNDER SECTION 147 OF THE ACT CAN BE INITIATED . THE PROVISO UNDER SECTION 147 OF THE ACT PROVIDES THAT WHERE ASSESSMENT UNDER SECTI ON 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 S ECTION 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 S INCE THE ASSESSEE HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, THEN ACTION UNDER SECTION 147 OF THE ACT CAN BE TAKEN. WE FIND NO MERIT IN THE PLEA OF THE REVENUE. 12. NOW, COMING TO THE FACTS OF THE PRESENT CASE, WHEREIN THERE IS FINDING IN THE CASE OF ASSESSEE ITSELF THOUGH BY THE DRP THAT NO TANGIBLE MATERIAL WAS BROUGHT IN THE REASONS RECORDED ON THE BASIS OF WHICH VALID REASON TO BELIEVE COULD BE FORMED. IT MAY BE REITERATED HEREIN ITSELF THAT REASONS RECORDED FOR ASSESSMENT YEARS 2005 - 06 AND 2008 - 09 ARE SAME. THOUGH THE APPEAL OF ASSESSEE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2005 - 06 WAS DISMISSED FOR LOW TAX EFFECT ALONG WITH APPEAL OF ANOTHER SISTER CONCERN, WHICH WAS ALSO REOPENED BY THE ASSESSING OFFICER ON IDENTICAL REASONS TO BELIEVE HOWEVER, IN THE CASE OF THIRD ENTITY AGAINST WHICH PROCEEDINGS UNDER SECTION 147 OF THE ACT WERE RECORDED, THE MATTER TRAVELLED TO THE TRIBUNAL AND THE TRIBUNA L IN DDIT (IT) VS. SAND VIK 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 HAD CONSIDERED THE RE - ASSESSMENT PROCEEDINGS ON THE BASIS OF DETAILS FURNISHED BY SANDVIK ASIA PVT. LTD., ONE OF THE GROUP CONCERNS. AS PER INFORMATION , PAYMENTS WERE MADE ON ACCOUNT OF IT SUPPORT SERVICES WHICH INFORMATION WAS TREATED AS TANGIBLE MATERIAL BY THE ASSESSING OFFICER AND PROCEEDINGS WERE INITIATED UNDER SECTION 147/148 OF THE ACT . THE CASE OF REVENUE BEFORE THE TRIBUNAL WAS THAT THE ASSESS ING OFFICER HAD REASON TO BELIEVE THAT INCOME OF ASSESSEE HAD ESCAPED ASSESSMENT. THE CASE OF ASSESSEE WAS THAT THE SAID INFORMATION DERIVED FROM ALLEGED TANGIBLE MATERIAL FOR RE - ASSESSMENT PROCEEDINGS WERE ALREADY FURNISHED BY THE ASSESSEE IN FORM NO.3CE B FILED ALONG WITH RETURN OF INCOME. THE SAID INFORMATION IS REPRODUCED AT PAGE 9 OF THE ORDER OF TRIBUNAL DATED 28.12.2016 . THE TRIBUNAL HELD THAT THE ASSESSING OFFICER CAN HAVE BELIEF FOR REOPENING ASSESSMENT IF THERE IS ANY TANGIBLE MATERIAL IN HIS PO SSESSION. THE TRIBUNAL FURTHER HELD THAT IN THE SAID CASE, THE ASSESSING OFFICER HAD NO NEW INFORMATION OR TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 16. IN SO F AR CONTENTIONS OF THE DEPARTMENT THAT THE ASSESSING OFFICER DID NOT GET OPPORTUNITY TO 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 HONBLE 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 E XTRACT OF THE FINDINGS OF THE HONBLE HIGH COURT ARE AS UNDER : 7 ITA NO S.489 & 490/PUN/2016 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 TH E 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 UND ER 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 DIFFERENT STANDARDS WHILE INTERPRETING THE WORDS REASON TO BELIEVE VIS - - VIS SECTION 143(1) AND SECTION 143(3). WE ARE UNABLE TO APPRECIATE WHAT PERMITS THE REVE NUE TO ASSUME THAT SOMEHOW THE SAME RIGOROUS STANDARDS WHICH ARE APPLICABLE IN THE INTERPRETATION OF THE EXPRESSION WHEN IT IS APPLIED TO THE REOPENING OF AN ASSESSMENT EARLIER MADE UNDER SECTION 143(3) CANNOT APPLY WHERE ONLY AN INTIMATION WAS ISSUED EARL IER UNDER SECTION 143(1). IT WOULD IN EFFECT PLACE AN ASSESSEE IN WHOSE CASE THE RETURN WAS PROCESSED UNDER SECTION 143(1) IN A MORE VULNERABLE POSITION THAN AN ASSESSEE IN WHOSE CASE THERE WAS A FULL - FLEDGED SCRUTINY ASSESSMENT MADE UNDER SECTION 143(3). WHETHER THE RETURN IS PUT TO SCRUTINY OR IS ACCEPTED WITHOUT DEMUR IS NOT A MATTER WHICH IS WITHIN THE CONTROL OF ASSESSEE; HE HAS NO CHOICE IN THE MATTER. THE OTHER CONSEQUENCE, WHICH IS SOMEWHAT GRAVER, WOULD BE THAT THE ENTIRE RIGOROUS PROCEDURE INVOLVE D IN REOPENING AN ASSESSMENT AND THE BURDEN OF PROVING VALID REASONS TO BELIEVE COULD BE CIRCUMVENTED BY FIRST ACCEPTING THE RETURN UNDER SECTION 143(1) AND THEREAFTER ISSUE NOTICES TO REOPEN THE ASSESSMENT. AN INTERPRETATION WHICH MAKES A DISTINCTION BETW EEN THE MEANING AND CONTENT OF THE EXPRESSION REASON TO BELIEVE IN CASES WHERE ASSESSMENTS WERE FRAMED EARLIER UNDER SECTION 143(3) AND CASES WHERE MERE INTIMATIONS WERE ISSUED EARLIER UNDER SECTION 143(1) MAY WELL LEAD TO SUCH AN UNINTENDED MISCHIEF. IT WOULD BE DISCRIMINATORY TOO. AN INTERPRETATION THAT LEADS TO ABSURD RESULTS OR MISCHIEF IS TO BE ESCHEWED. 13. THE TRIBUNAL ALSO TOOK NOTE OF THE CONTENTION OF THE DEPARTMENT THAT WHERE THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(1) OF THE ACT, THEN THE ASSESSING OFFICER DOES NOT GET OPPORTUNITY TO APPLY THE MIND AND RELIED UPON T HE HONBLE BOMBAY HIGH COURT IN KHUBCHANDANI HEALTHPARKS (P.) LTD. VS. ITO REPORTED IN 68 TAXMANN.COM 91 (BOM.), WHICH WAS ALSO IN RELATION TO ASSESSMENT BEING COMP LETED BY ISSUE OF INTIMATION UNDER SECTION 143(1) OF THE ACT AND THEREAFTER, ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT. THE HONBLE BOMBAY HIGH COURT ALSO CONSIDERED THE RATIO LAID DOWN BY THE APEX COURT IN ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LT D. (SUPRA). THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD ARE AS UNDER: - 16. IN SO FAR CONTENTIONS OF THE DEPARTMENT THAT THE ASSESSING OFFICER DID NOT GET OPPORTUNITY TO APPLY HIS MIND ON THE DOCUMENTS FURNISHED BY ASSESSEE AS THE ORIGINAL A SSESSMENT WAS COMPLETED U/S.143(1), WE DO NOT FIND ANY FORCE IN THE SAID CONTENTIONS. THE HONBLE 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 ASSESSM ENTS 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 HONBLE HIGH COURT ARE AS UNDER : 13. HAVING REGARD TO THE JUDICIAL INTERPRETATION PLACED UPON THE EXPRESSION REASON TO BELIE VE, 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 8 ITA NO S.489 & 490/PUN/2016 HAS BEEN UNDERSTOOD BY THE COURTS. THE ASSUMPTION OF THE REVENUE THAT SOMEHOW THE WORDS REA SON 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 LA NGUAGE 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 DIFFERENT STANDARDS WHILE INTERPRETING THE WORDS REASON TO BELIEV E VIS - - VIS SECTION 143(1) AND SECTION 143(3). WE ARE UNABLE TO APPRECIATE WHAT PERMITS THE REVENUE TO ASSUME THAT SOMEHOW THE SAME RIGOROUS STANDARDS WHICH ARE APPLICABLE IN THE INTERPRETATION OF THE EXPRESSION WHEN IT IS APPLIED TO THE REOPENING OF AN A SSESSMENT EARLIER MADE UNDER SECTION 143(3) CANNOT APPLY WHERE ONLY AN INTIMATION WAS ISSUED EARLIER UNDER SECTION 143(1). IT WOULD IN EFFECT PLACE AN ASSESSEE IN WHOSE CASE THE RETURN WAS PROCESSED UNDER SECTION 143(1) IN A MORE VULNERABLE POSITION THAN A N ASSESSEE IN WHOSE CASE THERE WAS A FULL - FLEDGED SCRUTINY ASSESSMENT MADE UNDER SECTION 143(3). WHETHER THE RETURN IS PUT TO SCRUTINY OR IS ACCEPTED WITHOUT DEMUR IS NOT A MATTER WHICH IS WITHIN THE CONTROL OF ASSESSEE; HE HAS NO CHOICE IN THE MATTER. THE OTHER CONSEQUENCE, WHICH IS SOMEWHAT GRAVER, WOULD BE THAT THE ENTIRE RIGOROUS PROCEDURE INVOLVED IN REOPENING AN ASSESSMENT AND THE BURDEN OF PROVING VALID REASONS TO BELIEVE COULD BE CIRCUMVENTED BY FIRST ACCEPTING THE RETURN UNDER SECTION 143(1) AND TH EREAFTER ISSUE NOTICES TO REOPEN THE ASSESSMENT. AN INTERPRETATION WHICH MAKES A DISTINCTION BETWEEN THE MEANING AND CONTENT OF THE EXPRESSION REASON TO BELIEVE IN CASES WHERE ASSESSMENTS WERE FRAMED EARLIER UNDER SECTION 143(3) AND CASES WHERE MERE INTI MATIONS WERE ISSUED EARLIER UNDER SECTION 143(1) MAY WELL LEAD TO SUCH AN UNINTENDED MISCHIEF. IT WOULD BE DISCRIMINATORY TOO. AN INTERPRETATION THAT LEADS TO ABSURD RESULTS OR MISCHIEF IS TO BE ESCHEWED. 17. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KHUBCHANDANI HEALTHPARKS (P) LTD. VS. ITO (SUPRA) HAS REITERATED THAT NOTICE ISSUED U/S.148 WOULD BE WITHOUT JURISDICTION FOR ABSENCE OF REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT EVEN IN CASE WHERE ASSESSMENT HAS BEEN COMPLETED EARLIER BY INTI MATION U/S.143(1) OF THE ACT. THE HONBLE HIGH COURT WHILE HOLDING SO, CONSIDERED THE DECISIONS RENDERED BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. RAJESH JHAVERI STOCK BROKERS (P) LTD. REPORTED AS 291 ITR 500 AND CIT VS. ZUARI ESTATE DEVELOPMENT & I NVESTMENT CO. LTD. (SUPRA). THE RELEVANT EXTRACT OF THE JUDGMENT RENDERED IN THE CASE OF KHUBCHANDANI HEALTHPARKS (P) LTD. VS. ITO (SUPRA) READS AS UNDER : 3. ON HEARING THE PARTIES, WE FIND 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 R EFERENCE 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. 9 ITA NO S.489 & 490/PUN/2016 4. WE FURTHER FIND THAT THE APEX C OURT IN ZUARI ESTATE DEVELOPMENT AND INVESTMENT CO. LTD. (SUPRA) HAS NOT DEALT WITH THE ISSUE WHETHER BEFORE INVOKING SECTION 148 OF THE ACT, THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, WHERE THE ORIGINAL ASSESSMENT HAS BEEN COMPLETED BY INTIMATION UNDER SECTION 143(1) OF THE ACT. THE REVENUE IS TRYING TO INFER THAT BECAUSE THE APEX COURT IN ZUARI ESTATE DEVELOPMENT AND INVESTMENT CO. LTD. (SUPRA) HAS SET ASIDE THE ORDER OF THIS COURT AND RESTORED THE ISSUE TO BE DECIDED ON MERITS BY THE TRIBUNAL, IT MUST BE INFERRED THAT THE APEX COURT HAD COME TO THE CONCLUSION THAT REASON TO BELIEVE WAS NOT NECESSARY FOR ISSUING REASSESSMENT NOTICES WHERE THE REGULAR ASSESSMENT WAS COMPLETED UNDER SECTION 143(1) OF THE ACT. AS RIGHTLY POINTED OUT BY MR. PARDIWALLA, IT CAN EQUALLY BE INFERRED THAT THE APEX COURT IN THE ABOVE CASE HAD COME TO THE CONCLUSION THAT THERE IS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT AND CONSEQUENTLY RESTORED THE ISSUE TO THE TRIBUNAL TO DECIDE THE REASSESSMENT PROCEEDINGS ON MERITS. 18. THUS, IN VIEW OF THE FACTS OF THE PRESENT CASE AND THE CASE LAWS DISCUSSED ABOVE WE HOLD THAT THE ASSESSING OFFICER HAD NO TANGIBLE MATERIAL TO JUSTIFY HIS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE REASSESSMENT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER U/S.147 ARE WITHOUT JURISDICTION AND HENCE, ARE NOT SUSTAINABLE. ACCORDINGLY GROUND NO.1 TO 3 RAISED BY DEPARTMENT IN APPEAL ARE DISMISSED. 10. WE FIND IN THE PRESENT CA SE ALSO THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME HAD GIVEN DECLARATION OF SUCH RECEIPTS, WHICH READS AS UNDER: - STATEMENT OF COMPUTATION OF TOTAL INCOME AND TAX THEREON PARTICULARS AMOUNT (INR) INCOME FROM BUSINESS AND PROFESSION CHARGEABLE TO T AX IN INDIA GROSS TOTAL INCOME (REFER NOTES TO THE COMPUTATION) TAX PAYABLE PREPAID TAXES: TAX DEDUCTED AT SOURCE TOTAL TAXES PAID TAX PAYABLE / REFUND DUE) - - - - - - NOTES: 1 ) AB SANDVIK MATERIALS TECHNOLOGY (ABSMT), INCORPORATED IN SWEDEN, IS A TAX RESIDENT OF SWEDEN. ABSMT DOES NOT HAVE ANY OFFICE OR PERMANENT ESTABLISHMENT IN INDIA AND HAS NOT CARRIED OUT ANY BUSINESS IN INDIA DURING THE FINA NCIAL YEAR 2008 - 2009 (FY 2008 - 09). 10 ITA NO S.489 & 490/PUN/2016 2 ) IN VIEW OF THE ABOVE, THE FOLLOWING RECEIPTS FROM SANDVIK ASIA LIMITED (SAL) HAVE NOT BEEN CONSIDERED AS TAXABLE IN INDIA. PARTICULARS AMOUNT RS EXPORT OF RAW MATERIAL 1,51,45,37,560 EXPORT OF SPARES 5,55,758 4 ) FURTHER, DURING FY 2008 - 09, ABSMT HAS RECEIVED RS.670,777 TOWARDS IT SUPPORT SERVICES FROM SAL. THE COMPANY HAS PROVIDED ACCESS TO INTERNALLY DEVELOPED APPLICATION AND RELATED SUPPORT THERETO TO SAPL. THE RECEIPTS TOWARDS THESE SERVICES DO NOT FALL WIT HIN THE AMBIT OF ROYALTY OR FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIAN AND SWEDEN (INDIA - SWEDEN TREATY), READ WITH THE PROTOCOL THERETO. HENCE THE SAME HAVE NOT BEEN OFFERED TO TAX IN INDIA. 11. FURTHER, IN FORM NO.3CEB, AUDIT REPORT, THE ASSESSEE IN CLAUSE 12 APPENDIX B, PLACED AT PAGE 12 OF THE PAPER BOOK HAS GIVEN DECLARATION IN RESPECT OF RECEIPT OF LICENSE FEES AS IN THE CASE DECIDED BY THE TRIBUNAL I.E. M/S. SANDVIK SYSTEM DEVELOPMENT AB VS. DDIT (IT) (SUPRA). 12. THE FACTS AND ISSUES IN PRESENT CASE ARE IDENTICAL TO THE FACTS AND ISSUES IN THE CASE OF SISTER CONCERN OF ASSESSEE (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE FIND NO MERIT IN THE REOPENING OF ASSESSMENT PROCEEDIN GS UNDER SECTION 147 OF THE ACT. IN THE ABSENCE OF ANY TANGIBLE MATERIAL ESTABLISHING ESCAPEMENT OF INCOME, REASONS TO BELIEVE RECORDED BY THE ASSESSING OFFICER OF ESCAPEMENT OF INCOME DOES NOT HAVE LIVE LINK, HENCE THE PROCEEDINGS INITIATED UNDER SECTI ON 147 OF THE ACT DO NOT STAND. EVEN IF THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1) OF THE ACT, THEN ALSO IT IS INCUMBENT UPON THE ASSESSING OFFICER TO GIVE FINDING ON THE BASIS OF TANGIBLE MATERIAL TO ESTABLISH CASE OF ESCAPEMENT OF INCOME , IN ORDER TO RECORD REASONS FOR REOPENING THE ASSESSMENT. ACCORDINGLY, WE HOLD THAT IN THE ABSENCE OF THE SAME, THERE IS NO MERIT IN THE PROCEEDINGS INITIATED UNDER SECTION 147 / 148 OF THE ACT. CONSEQUENTLY, THE ORDER PASSED UNDER SECTION 147 R.W.S. 143 (3) OF THE ACT DOES NOT STAND. SINCE WE ARE ALLOWING GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE, THE OTHER GROUNDS OF APPEAL BECOME ACADEMIC IN NATURE. 11 ITA NO S.489 & 490/PUN/2016 13. THE FACTS AND ISSUES IN ITA NO.490/PUN/2016 ARE IDENTICAL TO THE FACTS AND ISSUES IN ITA NO.489/ PUN/2016 AND OUR DECISION IN ITA NO.489/PUN/2016 SHALL APPLY MUTATIS MUTANDIS TO ITA NO.490/PUN/2016. 1 4 . IN THE RESULT, BOTH THE APPEAL S OF ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON THIS 12 TH DAY OF JANUARY , 201 8 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 12 TH JANUARY , 201 8 . RK / GCVSR / COPY OF THE O RDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE