M/s. Halcrow Group Ltd., New Delhi V. ADIT, New Delhi

ITA 5162/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4007 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 22-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MAHAJAN
• Assessee Lawyers: SALIL KAPOOR ADVOATE
• Keywords: Depreciation; Double taxation relief; Principle of natural justice; Permanent establishment; Difference of opinion; Reason to believe; Change of opinion; TDS
• Section: 234B; 144C; 143(2); 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NOS.5161 & 5162/DEL/2010 ASSESSMENT YEARS : 2002-03 & 2003-04 HALCROW GROUP LTD., R-27, 2 ND FLOOR, PRATAP MARKET, JANGPURA-B, NEW DELHI. PAN : AAACH7866E VS. ADIT, INTERNATIONAL TAXATION, ROOM NO.202, DRUM SHAPED BUILDING, IP EXTENSION, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL KAPOOR, ADVOATE & SHRI ANKIT GUPTA, AR REVENUE BY : SHRI A.K. MAHAJAN, CIT, DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER BOTH THESE APPEALS ARE FILED BY THE ASSESSEE. THEY ARE DIRECTED AGAINST THE ASSESSMENT ORDERS DATED 15 TH OCTOBER, 2010 PASSED U/S 143 (3) READ WITH SECTION 144C(5) OF THE INCOME-TAX ACT, 1961 FOR ASSESSMENT YEARS 2002-03 AND 2003-04. THE GROUNDS OF APP EAL READ AS UNDER:- ITA NO.5161/DEL/2010 1. THAT THE NOTICE ISSUED U/S 148 IS ILLEGAL, BAD IN LAW, BARRED BY TIME LIMITATION AND WITHOUT JURISDICTION AND THE REASSESSMENT ORDER PASSED IS ALSO ILLEGAL, BAD IN LA W, BARRED BY TIME LIMITATION AND WITHOUT JURISDICTION AND LI ABLE TO BE QUASHED. 2. THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS TRULY AND FULLY AND THERE I S NO SUCH ALLEGATION IN THE REASONS RECORDED HENCE THE NOTIC E ISSUED U/S 148 AFTER FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR IS ILLEGAL, BARRED BY TIME LIMITATION A ND WITHOUT JURISDICTION. ITA NOS.5161 & 5162/DEL/2010 2 WITHOUT JURISDICTION. 3. THE NOTICE U/S 148 HAS BEEN ISSUED ON THE BASIS O F CHANGE OF OPINION AND SUCH NOTICE IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 4. THAT THE NOTICE ISSUED U/S 148 HAS BEEN ISSUED WITH OUT ANY APPROVAL OF THE CHIEF COMMISSIONER OR COMMISSION ER OF THE INCOME TAX ON THE REASON RECORDED BY THE LD. ASSESSING OFFICER AS REQUIRED UNDER SECTION 151 (1) OF THE ACT, HENCE, THE SAME IS ILLEGAL AND BAD IN LAW. 5. THAT THE ALLEGED ESCAPED INCOME IS BELOW ONE LAKH , HENCE THE NOTICE ISSUED U/S 148 IS BAD IN LAW AND WITH OUT JURISDICTION. 6. THAT NO NOTICE U/S 143(2) HAS BEEN ISSUED WITHIN 12 MONTHS FROM THE END OF THE MONTH IN WHICH THE RETURN IS FILED, HENCE THE REASSESSMENT FRAMED IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION AND NO ADDITION COULD HAVE BEE N MADE BY THE A.O. THE NOTICE ISSUED U/S 143 (2) ON 23.3.2009 IS MUCH BEFORE THE SERVICE OF NOTICE U/S 14 8 AND THE SAME IS ILLEGAL AND BAD IN LAW AND DO NOT CONFORM WITH THE LEGAL REQUIREMENTS. 7. THAT THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL U/S 144C ARE INCORRECT, BAD IN LAW AND HAVE BE EN PASSED WITHOUT PROPERLY AND JUDICIALLY CONSIDERING THE SUBMISSION OF THE APPELLANT. THE DIRECTIONS ISSUED AR E AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 8. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE A.O. HAS ERRED IN LAW AND FACTS IN TREATING THE CONTR ACT RECEIPT AS FEE FOR TECHNICAL SERVICE (FTS). HE HAS FAILED TO APPRECIATE THAT NEITHER UNDER THE PROVISIONS OF SECTION 9 OF THE INCOME TAX NOR UNDER THE PROVISION OF ARTICLE 13 OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND UNITED KINGDOM, THE SAID RECEIPTS COULD BE TA XED AS FEE FOR TECHNICAL SERVICES. THE INCOME FROM SAI D RECEIPT IS CHARGEABLE AS NORMAL BUSINESS PROFIT OF THE PE AND THE PROVISIONS OF SECTION 44D ARE NOT APPLICABLE. THE ADDITION/DISALLOWANCES HAVE BEEN WRONGLY AND ILLEGAL LY MADE AND THE TAX HAS BEEN WRONGLY CHARGED. 9. THAT THE SRINAGAR-NAGPUR PROJECT IS FOR LESS THAN 6 MONTHS PERIOD AS SUCH AND DOES NOT CONSTITUTE A PE UNDER ARTICLE 5(2)(J) OF THE INDO-UK DTAA HENCE THE INCOME F ROM THE SAID CONTRACT RECEIPT IS NOT TAXABLE IN INDIA. 10. THAT THE INTEREST U/S 234A, 234B AND 234 HAS BEEN WRONGLY AND ILLEGALLY CHARGED AS THERE IS NO DELAY I N FILING OF RETURN AND THERE IS NO DEFAULT OF PAYMENT OF ADVANCE TAX AS THE RECEIPT/INCOME IS LIABLE TO TDS. ITA NOS.5161 & 5162/DEL/2010 3 AS THE RECEIPT/INCOME IS LIABLE TO TDS. 11. THAT THE EXPLANATION GIVEN, EVIDENCE PRODUCED AND MATERIAL PLACED AND MADE AVAILABLE ON RECORD HAVE NO T BEEN PROPERLY CONSIDERED AND JUDICIALLY INTERPRETED A ND THE SAME DO NOT JUSTIFY THE ADDITION MADE. 12. THAT THE ADDITIONS/DISALLOWANCES MADE ARE BASED O N MERE SURMISES AND CONJECTURES AND THE SAME CANNOT BE JUSTIFIED BY ANY MATERIAL ON RECORD. 13. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER A ND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. ITA NO.5162/DEL/2010 1. THAT THE NOTICE ISSUED U/S 148 IS ILLEGAL, BAD IN LAW, BARRED BY TIME LIMITATION AND WITHOUT JURISDICTION AND THE REASSESSMENT ORDER PASSED IS ALSO ILLEGAL, BAD IN LA W, BARRED BY TIME LIMITATION AND WITHOUT JURISDICTION AND LI ABLE TO BE QUASHED. 2. THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS TRULY AND FULLY AND THERE I S NO SUCH ALLEGATION IN THE REASONS RECORDED HENCE THE NOTIC E ISSUED U/S 148 AFTER FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR IS ILLEGAL, BARRED BY TIME LIMITATION A ND WITHOUT JURISDICTION. 3. THE NOTICE U/S 148 HAS BEEN ISSUED ON THE BASIS O F CHANGE OF OPINION AND SUCH NOTICE IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 4. THAT THE NOTICE ISSUED U/S 148 HAS BEEN ISSUED WITH OUT ANY APPROVAL OF THE CHIEF COMMISSIONER OR COMMISSION ER OF THE INCOME TAX ON THE REASON RECORDED BY THE LD. ASSESSING OFFICER AS REQUIRED UNDER SECTION 151 (1) OF THE ACT, HENCE, THE SAME IS ILLEGAL AND BAD IN LAW. 5. THAT NO NOTICE U/S 143(2) HAS BEEN ISSUED WITHIN 1 2 MONTHS FROM THE END OF THE MONTH IN WHICH THE RETURN IS FILED, HENCE THE REASSESSMENT FRAMED IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION AND NO ADDITION COULD HAVE BEE N MADE BY THE A.O. THE NOTICE ISSUED U/S 143 (2) ON 23.3.2009 IS MUCH BEFORE THE SERVICE OF NOTICE U/S 14 8 AND THE SAME IS ILLEGAL AND BAD IN LAW AND DO NOT CONFORM WITH THE LEGAL REQUIREMENTS. 6. THAT THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL U/S 144C ARE INCORRECT, BAD IN LAW AND HAVE BE EN PASSED WITHOUT PROPERLY AND JUDICIALLY CONSIDERING THE SUBMI SSION OF THE APPELLANT. THE DIRECTIONS ISSUED ARE ITA NOS.5161 & 5162/DEL/2010 4 SUBMISSION OF THE APPELLANT. THE DIRECTIONS ISSUED AR E AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 7. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE A.O. HAS ERRED IN LAW AND FACTS IN TREATING THE CONTR ACT RECEIPT AS FEE FOR TECHNICAL SERVICE (FTS). HE HAS FAILED TO APPRECIATE THAT NEITHER UNDER THE PROVISIONS OF SECTION 9 OF THE INCOME TAX NOR UNDER THE PROVISION OF ARTICLE 13 OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND UNITED KINGDOM, THE SAID RECEIPTS COULD BE TA XED AS FEE FOR TECHNICAL SERVICES. THE INCOME FROM SAI D RECEIPT IS CHARGEABLE AS NORMAL BUSINESS PROFIT OF THE PE AND THE PROVISIONS OF SECTION 44D ARE NOT APPLICABLE. THE ADDITION/DISALLOWANCES HAVE BEEN WRONGLY AND ILLEGAL LY MADE AND THE TAX HAS BEEN WRONGLY CHARGED. 8. THAT THE INTEREST U/S 234A, 234B AND 234 HAS BEEN WRONGLY AND ILLEGALLY CHARGED AS THERE IS NO DELAY I N FILING OF RETURN AND THERE IS NO DEFAULT OF PAYMENT OF ADVANCE TAX AS THE RECEIPT/INCOME IS LIABLE TO TDS. 9. THAT THE EXPLANATION GIVEN, EVIDENCE PRODUCED AND MATERIAL PLACED AND MADE AVAILABLE ON RECORD HAVE NO T BEEN PROPERLY CONSIDERED AND JUDICIALLY INTERPRETED A ND THE SAME DO NOT JUSTIFY THE ADDITION MADE. 10. THAT THE ADDITIONS/DISALLOWANCES MADE ARE BASED O N MERE SURMISES AND CONJECTURES AND THE SAME CANNOT BE JUSTIFIED BY ANY MATERIAL ON RECORD. 11. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER A ND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. THOUGH THE ASSESSEE HAS TAKEN VARIOUS GROUNDS OF APPEAL WHICH INCLUDE ASSAILING OF THE IMPUGNED ASSESSMENT ON THE BASIS O F INVALIDITY OF INITIATION OF RE-ASSESSMENT PROCEEDINGS, LD. COUNSEL O F THE ASSESSEE STATED BEFORE US THAT THE IMPUGNED ASSESSMENT HAS TO BE STR UCK DOWN SIMPLY ON THE BASIS OF APPLICABILITY OF PROVISO TO SECT ION 147. HE SUBMITTED THAT THE FACTS RELATING TO BOTH THE YEARS AR E AS UNDER:- ASSESSMENT YEAR 2002-03 I) ORIGINAL ASSESSMENT WAS FRAMED VIDE ORDER PASSED U/S 143 (3) DATED 30 TH MARCH, 2005, COPY OF WHICH IS PLACED AT PAGES 49 & ITA NOS.5161 & 5162/DEL/2010 5 50 OF THE PAPER BOOK. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 31 ST OCTOBER, 2002 AT A LOSS OF `16,80,80,967/- WHICH WAS ASSESSED PROJECT-WISE AS UNDER:- INCOME DECLARED FROM SRINAGAR- NAGPUR PROJECT TO BE FIXED AT 15% RS.1,30,000/- INCOME FROM AHMEDABAD-VADODRA PROJECT TO BE FIXED AT 20% RS.1,11,73,007/- INTEREST ON FIXED DEPOSIT IN SRINAGAR-NAGPUR PROJECT RS.2,67,440/- IN AHMEDABAD-VADODRA PROJECT TO BE FIXED AT 48% RS.1,07,502 RS.3,74,942/- II) THE ASSESSING OFFICER INITIATED RE-ASSESSMENT PROCEEDIN GS VIDE NOTICE DATED 23 RD MARCH, 2009 ALONG WITH REASONS RECORDED ON 17 TH MARCH, 2009 AND COPIES OF NOTICE AND REASONS ARE PLACED AT PAGES 38-40 OF THE PAPER BOOK. AS PER REASONS RECORDED IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07 WHICH WAS PASSED ON 18 TH DECEMBER, 2008, IT WAS NOTICED THAT THE ASSESSEE WAS WRONGLY COMPUTING ITS TA X LIABILITY SINCE BEGINNING BEING LESSER OF TAX PAYABLE @ 41.82% OR 42% OF NET PROFIT OF PE OR TAX @ 20.91% ON GROSS A MOUNT OF FTS. IT IS MENTIONED IN THE REASONS THAT KEEPING IN V IEW THAT FACT, THE INCOME OF THE ASSESSEE FROM SRINAGAR-NAGPUR P ROJECT HAS WRONGLY BEEN COMPUTED AND SURCHARGE AND CESS (AS APPLICABLE FOR THE YEAR) HAS ALSO NOT BEEN CHARGED AN D, THEREFORE THE ASSESSING OFFICER HAS REASONS TO BELIEVE THA T THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AS PER CLAUSE (C) (II) OF EXPLANATION (2) OF SECTION 147 OF THE ACT AND KEEPING IN VIEW THE FINDINGS RECORDED IN THE ASSESSMENT ORDER, PASSED FOR ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER HAS BELIEVED THAT INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT WHICH IS MORE THAN ` 1 LAC. IT IS ALSO MENTIONED IN THE REASONS THAT SINCE MORE THAT SIX YEARS HAVE LAPSED AND THE INCOME ESCAPED IS MORE THAN ` 1 LAC, TH E ITA NOS.5161 & 5162/DEL/2010 6 CONDITIONS OF INITIATION OF RE-ASSESSMENT PROCEEDINGS WIT HIN TIME LIMIT ARE FULFILLED AS PROVIDED IN SECTION 149 OF THE ACT AND AS MORE THAN FOUR YEARS HAVE EXPIRED FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE SATISFACTION OF ADDL. COMMISSIONER IS REQUIRED AND, FOR THE SAME, IT IS PUT UP FOR NECESSARY ACTION. THEREFORE, NOTICE DATED 23 RD MARCH, 1999 HAS BEEN ISSUED TO THE ASSESSEE UNDER THE PROVISIONS OF SECTION 148, THE COPY OF WHICH IS FILED AT PAGE 38 O F THE PAPER BOOK. IT IS IN PURSUANCE OF THE SAID RE-ASSESSMENT PROCEEDINGS THE ASSESSEE HAS BEEN ASSESSED VIDE THE IMPUGNED ORDER DATED 15 TH OCTOBER, 2010 COPY OF WHICH IS FILED AT PAGES 16-20 OF THE PAPER BOOK. ASSESSMENT YEAR 2003-04 3. THE ASSESSMENT ORDER ORIGINALLY WAS PASSED U/S 143 (3) V IDE ORDER DATED 31 ST MARCH, 2006. THE REASONS FOR INITIATING RE-ASSESSMENT PROCEEDINGS WERE RECORDED AND NOTICE U/S 148 WAS ISSUED ON 23 RD MARCH, 2009 AND COPIES OF THE REASONS AND NOTICE ARE P LACED AT PAGES 87-89 OF THE PAPER BOOK. THE IMPUGNED ASSESSMENT CAME TO BE FRAMED VIDE ORDER DATED 15 TH OCTOBER, 2010 . THE COPY OF THE SAID ASSESSMENT ORDER IS PLACED AT PAGE 66-70 OF THE PAPER BO OK. THE FACTUAL ASPECT WITH REGARD TO BOTH THE YEARS ARE SAME . THE REASON FOR REOPENING OF THE ASSESSMENT IS ALSO SAME. 4. LD. AR OF THE ASSESSEE ARGUED THE APPEAL ON THE SHORT ISSUE THAT RE-ASSESSMENT PROCEEDINGS IN BOTH THE CASES ARE INVALID ON THE GROUND OF APPLICATION OF PROVISO TO SECTION 147. HE SUBMITT ED THAT FOR BOTH THE ASSESSMENT YEARS, NOTICE U/S 148 HAS BEEN ISSUED BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEARS. THERE IS NO ALLEGATION BY THE ASSESSING OFFICER THAT IN THE REASONS R ECORDED THE ASSESSEE DID NOT DISCLOSE FULLY AND TRULY ALL THE MATERIA L FACTS ITA NOS.5161 & 5162/DEL/2010 7 NECESSARY FOR ITS ASSESSMENT. HE, THEREFORE, SUBMITTED THA T EXERCISE OF POWER OF RE-ASSESSMENT BY THE ASSESSING OFFICER IS CONTRARY TO THE PROVISO TO SECTION 147 AND ARE REQUIRED TO BE QUASHED . LD. AR ALSO RELIED UPON THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASES OF WELL INTERTRADE PVT. LTD. (FORMERLY WEL INTERTRADE LTD.) & ANOTHER, PETITIONER VS. ITO (2008) 308 ITR 22 (DEL) AND M/S HA RYANA ACRYLIC MANUFACTURING COMPANY VS. CIT IV AND ANOTHER 308 IT R 38 (DEL). HE SUBMITTED THAT FOLLOWING THE AFOREMENTIONED DECISIONS OF THE JURISDICTIONAL HIGH COURT, THE TRIBUNAL VIDE ITS ORDE R DATED 19 TH DECEMBER, 2010 IN THE CASE OF MICROSOFT CORPORATION I NDIA LTD. ITA NOS.4713/DEL/2010 AND CO NO.345/DEL/2010 HAS QUASHED T HE ASSESSMENT PROCEEDINGS. HE HAS PLACED BEFORE US A COPY OF THE SAID DECISION AND A COPY WAS ALSO GIVEN TO LD. DR. 5. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF ASSESSING OFFICER AND CIT (A) AND CONTENDED THAT THE ASSESSEE FAI LED TO PAY THE CORRECT RATE OF TAX, HENCE, THE ASSESSING OFFICER WAS RI GHT IN INVOKING THE RE-ASSESSMENT PROCEEDINGS AND THE ORDER OF THE ASSESSING OFFICER HAS RIGHTLY BEEN UPHELD BY THE CIT (A). THEREFORE, THE APPEALS FILED BY THE ASSESSEE SHOULD BE DISMISSED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THESE APPEALS HAVE BEEN HEARD ON THE SHORT ISSUE THAT WHETHER OR NOT THE POWERS OF RE-ASSESSMENT WERE RIGHTLY INVOKED BY THE ASSESSIN G OFFICER. LD. AR OF THE ASSESSEE HAS PLACED ITS DEFENCE ON THE BASIS OF PROVISO TO SECTION 147. FOR THE SAKE OF CONVENIENCE, SECTION 1 47 AND FIRST PROVISO THEREOF IS REPRODUCED BELOW:- 147 147 147 147. IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR AN Y ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF S ECTIONS 148 TO 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMEN T AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LOSS O R THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY ITA NOS.5161 & 5162/DEL/2010 8 BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THI S SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR): PROVIDED PROVIDED PROVIDED PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEV ANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS S ECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELE VANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASO N OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UN DER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SU B- SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT AS SESSMENT YEAR: 7. ACCORDING TO THE PROVISO WHERE EARLIER ASSESSMENT IS F RAMED U/S 143 (3) OR U/S 147, NO ACTION SHALL BE TAKEN BY THE D EPARTMENT U/S 147 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF RELEV ANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED A SSESSMENT FOR THE SAID ASSESSMENT YEAR FOR REASON OF FAILURE ON THE PAR T OF THE ASSESSEE TO MAKE A RETURN U/S 139 OR IN RESPONSE TO A NOTI CE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 O R TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. CONSIDERING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE AFOREMENTIONED PROVISO, FIRST IT HAS TO BE DETE RMINED THAT WHETHER THE ASSESSMENTS ORIGINALLY ARE FRAMED U/S 143 (3) . IT HAS ALREADY BEEN OBSERVED THAT FOR ASSESSMENT YEAR 2002-03, ASSESSMENT U/S 143 (3) WAS FRAMED VIDE ORDER DATED 30 TH MARCH, 2005 AND THE COPY OF SUCH ORDER IS PLACED AT PAGE 49 AND 50 OF THE PAPE R BOOK. SIMILARLY, FOR ASSESSMENT YEAR 2003-04, THE ASSESSMENT WAS FRAMED U/S 14 3 (3) VIDE ORDER DATED 31 ST MARCH, 2006 AND COPY OF SUCH ORDER IS PLACED AT PAGE 97 OF THE PAPER BOOK. IT IS ALSO NOT THE CASE OF THE DEPARTMENT THAT RE-ASSESSMENT IS INITIATED FOR THE REASON OF NON-FUR NISHING OF RETURN U/S 139 OR NON-FURNISHING OF RETURN IN RESPONSE TO NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR UNDER SECTION 148. THEREFORE, THE ONLY ISSUE REMAINED TO BE EXAMINED FOR APPLICABIL ITY OF PROVISO IS ITA NOS.5161 & 5162/DEL/2010 9 THAT WHETHER THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSE SSMENT. FOR THAT FIRSTLY WE HAVE TO EXAMINE WHETHER OR NOT ANY SUCH AL LEGATION IS MADE BY THE ASSESSING OFFICER IN THE REASONS RECORDED BY HIM F OR THE RESPECTIVE ASSESSMENT YEARS. FOR THAT PURPOSE, IT WILL BE RELEVANT TO REPRODUCE THE REASONS RECORDED BY THE ASSESSING OFFICER F OR EXERCISING POWERS OF RE-ASSESSMENT. THE REASONS FOR ASSESSMENT YEAR 2002 -03 ARE REPRODUCED BELOW:- REASONS RECORDED FOR ISSUE OF NOTICE U/S 148 OF TH E INCOME TAX ACT, 1961 IN THE CASE OF HALCROW GROUP L TD. FOR A.Y. 2002-03. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE LAWS OF UNITED KINGDOM. IT CARRIES ON BUSINESS OF PROVIDING CONSULTANCY SERVICES. IN THE CASE OF THE ASSESSEE, ASSESSMENT ORDE R U/S.143(3) OF THE ACT FOR THE A.Y. 2002-03 WAS PASSED ON 30.03.2005 AT THE TOTAL INCOME OF RS. 11,677,949/- AS A GAINST THE RETURNED LOSS OF RS. 16,80,80,967/-. DURING THE YE AR, THE ASSESSEE WAS INVOLVED IN THE EXECUTION OF TWO PROJECTS NAMELY AHMEDABAD-VADODRA PROJECT AND SRLNAGAR-NAGPUR PROJEC T. IN THE- ASSESSMENT ORDER, IT WAS CORRECTLY HELD THAT IN RESPECT OF TOTAL RECEIPT FROM AHMEDABAD-VADODRA PROJECT, PROVISION S OF SECTION 44D R.W.S. 115A WILL BE, APPLICABLE, AND ACC ORDINGLY, THE TOTAL RECEIPT FROM THE SAID PROJECT WAS TAXED @ 20% BUT WH ILE COMPUTING THE TAX LIABILITY OF THE ASSESSEE, SURCHARGE A ND CESS (AS APPLICABLE) WAS NOT LEVIED. THE RECEIPT FROM SRI NAGAR NAGPUR PROJET WAS TAXED @15% AS PER ARTICLE 13 OF THE T AX TREATY WHICH SHOULD HAVE ALSO BEEN TAXED @ 20% AS PER SECTION 44D R.W.S 115A OF THE ACT AS DURING THE YEAR THE ASSESS EE HAD PERMANENT ESTABLISHMENT IN INDIA IN THE FORM OF PROJECT OFFICES AND SERVICES RENDERED BY IT WERE EFFECTIVELY CONNECTED TO THE SAID PROJECT OFFICES. IN THE CASE OF THE ASSESSEE, AN ASSESSMENT ORDER FOR A .Y. 2006- 07 HAS RECENTLY BEEN PASSED ON 18.12.2008. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE HAS WRONGLY BEEN COMPUTING ITS TAX LIABILITY SINCE BEGINNIN G, BEING LESSER OF TAX PAYABLE @ 41.82% OR 42% ON NET PROFIT OF THE PE OR TAX @ 20.91% ON GROSS AMOUNT OF FTS. AS AN UNDISPUTED FACT, THE CONSIDERATION RECEIVED BY THE ASSESSEE IS DETERMINE D IN THE SAID ASSESSMENT ORDER OF THE NATURE OF FEE FOR TECHNICA L SERVICES AS PER EXPLANATION 2 TO SECTION 9(1){VII) OF THE ACT. SI NCE THE ASSESSEE PROVIDES THE SERVICES THROUGH VARIOUS PROJEC T OFFICES, THEREFORE, THE FTS ARISEN TO THE ASSESSEE ARE EFFECTIVEL Y CONNECTED TO SUCH PROJECT OFFICES/PERMANENT, ESTABLISHME NT OF THE ASSESSEE IN INDIA AND ARE LIABLE TO BE TAXED AS PE R ARTICLE 7 ITA NOS.5161 & 5162/DEL/2010 10 OF THE DTAA BETWEEN INDIA AND UK AND AS PER SECTION 44 D/44DA R.W.S. 115A OF THE ACT DEPENDING UPON THE DATE OF AGREE MENT. AFTER A DETAILED DISCUSSION ON THE ABOVE PROVISIONS OF D TAA AND THE ACT, IT WAS HELD IN THE ASSESSMENT ORDER FOR A.Y . 2006-07, THAT THE INCOME OF THE ASSESSEE WITH REGARD TO TH E PROJECTS, WHERE CONTRACT ENTERED BEFORE 1.4.2004, NO DE DUCTION FOR THE EXPENSES ARE ALLOWABLE AND THE ASSESSEE IS LI ABLE TO PAY TAX IN INDIA AS PER SECTION 44D R.W.S. 115A OF THE ACT AND WITH REGARD TO THE PROJECTS, WHERE CONTRACT ENTERED AFTER 1.4.2 004, THE PROVISIONS OF SECTION 44DA OF THE ACT WILL APPLY. - IN VIEW OF THE ABOVE, AND THE FACT THAT THE TAX ON THE INCO ME OF THE ASSESSEE FROM SRINAGAR-NAGPUR PROJECT HAS BEEN WR ONGLY COMPUTED AND SURCHARGE AND CESS (AS APPLICABLE) FOR THE YEAR HAS ALSO NOT BEEN CHARGED, I HAVE REASON TO BELIEVE TH AT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A.Y. 2002 03 AS PER CLAUSE (C)(II) OF EXPLANATION 2 TO THE SECTION 147 OF THE ACT. CONSIDERING THE FINDINGS OF THE ASSESSMENT ORDER PASSE D FOR 2006-07, I BELIEVE THAT INCOME CHARGEABLE TO TAX, WHICH HAS ESCAPED ASSESSMENT AMOUNTS TO OR IS LIKELY TO MORE THAN RS. 1 LAKH FOR THE YEAR. IN THIS CASE NOT MORE THAN 6 YEARS HAVE LAPSED FROM THE END OF THE RELEVANT ASSTT. YEAR (2002-03) AND INCOME OF MORE TH AN RS. 1 LAKH HAS ESCAPED ASSESSMENT, THEREFORE THE NOTICE U/S 148 R.W,S. 147 OF THE ACT SATISFIES THE TIME LIMIT FOR ISSUE OF NOTICE AS PROVIDED IN SECTION 149 OF THE ACT. AS IN THIS CASE, MORE THAN 4 YEARS HAVE EXPIRED FROM THE END OF THE RELEVANT ASSESSMENT YEAR SATISFACTION OF THE ADDL. COMMISSIONER IS REQUIRED. THEREFORE, THE SAME IS PUT UP FOR NECESSARY ACTION. 8. THE REASONS FOR ASSESSMENT YEAR 2003-04 ARE SAME EXCEPT FIRST PARA WHICH IS REPRODUCED BELOW:- REASONS RECORDED FOR ISSUE OF NOTICE U/S 148 OF TH E INCOME TAX ACT, 1961 IN THE CASE OF HALCROW GROUP L TD. FOR A.Y. 2003-04. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE LAWS OF UNITED KINGDOM. IT CARRIES ON BUSINESS OF PROVIDING CONSULTANCY SERVICES. IN THE CASE OF THE ASSESSEE, ASSESSMENT ORDE R U/S.143(3) OF THE ACT FOR THE A.Y. 2002-03 WAS PASSED ON 31.03.2006 AT THE TOTAL INCOME OF RS. 11,235,642/- AS A GAINST THE RETURNED INCOME OF RS. 52,24,850/-. DURING THE YEA R, THE ASSESSEE WAS INVOLVED IN THE EXECUTION OF FOUR PROJEC TS NAMELY AHMEDABAD-VADODRA PROJECT (CONTRACT DATED 7.8.2000), ITA NOS.5161 & 5162/DEL/2010 11 SRINAGAR-NAGPUR PROJECT, GRAND TRUNK PROJECT (CONTRACT DATED 19.03.2002) AND PANAGARH-PALSIVE PROJECT (CONTRACT DATE D 6.3.2002). IN THE- ASSESSMENT ORDER, RECEIPTS FROM A LL THE PROJECTS HAVE BEEN TAXED @ 42% ON NET PROFIT AS BUSINES S INCOME, WHICH IS WRONG. AS THE RECEIPTS FROM ALL THE PROJECTS WERE OF THE NATURE OF FTS AND EFFECTIVELY CONNECTED TO TH E PE (I.E., PROJECT OFFICES) OF THE ASSESSEE, THE PROVISION S OF SECTION 44D R.W.S 115A SHOULD HAVE BEEN APPLIED. THE OTHER PARAS ARE SIMILAR TO ASSESSMENT YEAR 2003-04. 9. IT CAN BE SEEN FROM THE ABOVE REASONS THAT THERE IS NO ALLEGATION OF THE ASSESSING OFFICER REGARDING FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE A SSESSMENT OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEARS. MOREOVER, IT IS APPARENT THAT THE REASON FOR RE-OPENING OF THE ASSESSMENT IS DIFFE RENCE IN THE RATE OF TAX TO BE APPLIED ON THE ASSESSABLE INCOME. AC CORDING TO THE ASSESSING OFFICER, THE ASSESSED INCOME HAS BEEN WRONGLY TAX ED AT 15% WHEREAS IT SHOULD HAVE BEEN TAXED AT 20%. APPLICATIO N OF RATE OF TAX ON ASSESSED INCOME CANNOT IN ANY WAY BE THE RESULT OF TH E FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FAC TS NECESSARY FOR ASSESSMENT. THE ASSESSING OFFICER IS AN ADJUDICATING AUTHOR ITY FOR THE PURPOSE OF LEVY OF RATE OF TAX ON PARTICULAR TYPE OF INCOME AND IN CASE WHEN THERE IS NO DISPUTE REGARDING THE ASSESSABLE AMOUNT, THEN, IT IS ONLY THE ASSESSING OFFICER WHO HAS TO DETERMINE THAT WHA T RATE OF TAX IS PAYABLE BY THE ASSESSEE ON A PARTICULAR INCOME. THE LOWER RATE OF TAX CHARGED BY THE ASSESSING OFFICER ON A PARTICULAR CA TEGORY OF INCOME CANNOT BE SAID TO BE ON ACCOUNT OF FAILURE O F THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. ACCORDIN G TO THE FACTS OF THE CASE, NOTICE COULD VALIDLY BE ISSUED UPTO TO 31 ST MARCH, 2007 AND 31 ST MARCH, 2008 FOR ASSESSMENT YEAR 2002-03 AND ASSESSMENT YEAR 2003- 04 RESPECTIVELY AS THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FO R ITS ASSESSMENT FOR THE RELEVANT ASSESSMENT YEARS. THE FIRST PROVISO TO S ECTION 147 DEBARS THE INITIATION OF PROCEEDINGS U/S 147/148. IT IS ALSO CLEAR FROM ITA NOS.5161 & 5162/DEL/2010 12 THE PAPER BOOK THAT FOR ASSESSMENT YEAR 2002-03 THE ASSESSE E HAD FILED RETURN IN RESPONSE TO NOTICE U/S 148 ON 19 TH NOVEMBER, 2009 AND COPY OF ACKNOWLEDGEMENT IS FILED AT PAGE 42 OF THE P APER BOOK. FOR ASSESSMENT YEAR 2003-04 SUCH RETURN IS FILED ON 19 TH NOVEMBER, 2009 COPY OF ACKNOWLEDGEMENT IS FIELD AT PAGE 90 OF THE P APER BOOK AND FACT REGARDING FILING OF RETURN IN RESPONSE TO NOTICE U/S 148 IS ALSO RECORDED IN THE RESPECTIVE ASSESSMENT ORDERS. THEREFORE, IT IS A CASE WHERE FIRST PROVISO TO SECTION 147 IS CLEARLY APPLICAB LE. THE INITIATION OF RE-ASSESSMENT PROCEEDING IS BAD IN LAW, HENCE, THE IMPUG NED ASSESSMENTS ARE QUASHED ON THE LEGAL GROUND THAT INITIATI ON OF RE- ASSESSMENT PROCEEDINGS IS BAD IN LAW. AS WE HAVE QUASHED T HE IMPUGNED ASSESSMENTS, WE DO NOT CONSIDER IT NECESSARY TO GO INTO THE MERITS OF THE ADDITIONS WHICH ARE ALSO CHALLENGED IN T HE PRESENT APPEALS. 10. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 20.05.20 11. SD/- SD/- [K.D. RANJAN] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 20.05.2011. DK ITA NOS.5161 & 5162/DEL/2010 13 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES