ATOMSTROYEXPORT, MUMBAI V. DDIT (IT) RG 1(1), MUMBAI

ITA 8073/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71767 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 18-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 23-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY SHRIVASTAVA
• Keywords: Double taxation relief; Opportunity of being heard; Period of limitation; Permanent establishment; Reason to believe; Reassessment proceedings
• Section: 143(3); 142(1); 234B; 147; 148; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L B ENCH, MUMBAI . . , , !'#$ , % & BEFORE SHRI B.R. MITTAL, JM AND SHRI N.K. BILLAI YA, AM ./ I.T.A. NO. 8073/MUM/2010 ( ' ' ' ' / ASSESSMENT YEAR : 2006-07 M/S. ATOMSTROYEXPORT, C/O NUCLEAR POWER CORPN. OF INDIA LTD., 8 TH FLOOR, SOUTH WING, VIKRAM SARABHAI BHAVAN, CENTRAL AVENUE, ANUSHAKTI NAGAR, MUMBAI-400 094 THE DY. DIRECTOR OF INCOME- TAX (INTERNATIONAL TAXATION), RANGE-1(1), MUMBAI ( % ./ )* ./PAN/GIR NO. : AAFCA 3658N ( (+ /APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : ` SHRI NITESH JOSHI ,-(+ / . /RESPONDENT BY : SHRI AJAY SHRIVASTAVA / 01% / DATE OF HEARING :.27. 11.2013 23' / 01% / DATE OF PRONOUNCEMENT : 04.12.2013 4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY DDIT(IT) FOLLOWING THE DIRECTIONS ISSUED BY DISPUTE RESOLUTION PANEL U/S. 143(3) R.W. SEC. 147 AND 144C OF THE ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: ITA NO.8073/M/2010 2 THE APPELLANT COMPANY OBJECTS TO THE ORDER DATED 2 7 SEPTEMBER 2010 PASSED BY THE DEPUTY DIRECTOR OF INC OME TAX (INTERNATIONAL TAXATION), RANGE-1(1), MUMBAI (DDIT ) FOLLOWING THE DIRECTION ISSUED BY DISPUTE RESOLUTION PANEL (DRP) UNDER SECTION 143(3) R.W.S 147 & 144C(13) OF THE INCOME TAX ACT, 1961 (ITA) ON THE FOLLOWING GROUNDS: REASSESSMENT PROCEEDINGS UNDER SECTION 147 1. THE LEARNED DDIT ERRED IN INITIATING REASSESSMEN T PROCEEDINGS UNDER SECTION 148 OF THE ITA IN THE ABS ENCE OF THE SPECIFIED JURISDICTIONAL CONDITIONS. 2. THE REASSESSMENT PROCEEDING IS THEREFORE BAD IN LAW AND CONSEQUENTLY THE ASSESSMENT ORDER PASSED BY THE LEARNED DDIT OUGHT TO BE QUASHED. ORDER PASSED BY THE LEARNED DDIT IS INVALID, BAD IN LAW AND OUGHT TO BE QUASHED 3. THE LEARNED DRP ERRED IN ISSUING DIRECTIONS UNDE R SECTION 144C(5) WITHOUT PROVIDING THE APPELLANT COM PANY WITH A REASONABLE OPPORTUNITY OF BEING HEARD THEREBY MAKIN G THE ORDER PASSED BY THE LEARNED DDIT PURSUANT TO THE DIRECTIO NS OF THE DRP AS INVALID AND BAD IN LAW AND THEREFORE OUGHT TO BE QUASHED. TAXABILITY OF PAYMENT RECEIVED UNDER OFFSHORE SUPPLY CONTRACTS 4. THE LEARNED DDIT ERRED IN GIVING EFFECT TO THE D IRECTIONS GIVEN BY THE DRP FOR ENHANCEMENT OF ASSESSMENT EVEN THOUGH SUCH DIRECTIONS WERE ISSUED CONTRARY TO THE SPECIFI C PROVISIONS OF LAW. 5. THE LEARNED DDIT/ DRP ERRED IN HOLDING THAT THE AMOUNT RECEIVED UNDER THE OFFSHORE SUPPLY CONTRACTS S COVE RED BY THE PROVISIONS OF SECTION 44BBB OF THE ITA AND CONSEQUE NTLY LIABLE TO TAX IN INDIA EVEN THOUGH THE SUPPLIES WERE COMPLETE D OUTSIDE INDIA. INTEREST UNDER SECTION 234B OF THE ITA 6. THE LEARNED DDIT ERRED IN LEVYING INTEREST OF RS .23.71 CRORES UNDER SECTION 234B OF THE ITA ON THE APPELLA NT COMPANY. 7. THE LEARNED DDIT FAILED TO APPRECIATE THAT THE E NTIRE INCOME OF THE APPELLANT COMPANY IS SUBJECT TO TAX D EDUCTIBLE AT SOURCE AND THEREFORE THE INTEREST UNDER SECTION 234 B IS NOT LEVIABLE ON THE APPELLANT COMPANY. ITA NO.8073/M/2010 3 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T WO 1000 MW NUCLEAR POWER PLANT UNIT ARE BEING SET UP AT KUDANKULAM, TAMIL NADU BY NUCLEAR POWER CORPN. OF INDIA LTD. (NPCIL). THIS N UCLEAR POWER PROJECT IS BEING IMPLEMENTED IN ACCORDANCE WITH AN AGREEMENT FOR CO OPERATION FOR CONSTRUCTION OF A NUCLEAR POWER STAT ION BETWEEN REPUBLIC OF INDIA AND RUSSIAN FEDERATION, JOINT STOCK COMPAN Y ATOMSTROYEXPORT(ASE) AND NUCLEAR POWER CORPORATIO N OF INDIA LTD (NPCIL), A GOVERNMENT OF INDIA COMPANY ARE THE AUTH ORIZED GOVERNMENTAL BODIES OF RUSSIAN FEDERATION AND GOVT . OF INDIA RESPECTIVELY TO ACT AS AGENCIES RESPONSIBLE FOR IMP LEMENTATION OF THE NUCLEAR POWER PLANT UNDER FOLLOWING AGREEMENT: A) OFFSHORE SERVICES CONTRACT DT. 17.12.2001. B) CONTRACT FOR DEPUTATION OF CONTRACTORS SPECIAL ISTS AT SITE DT. 23.8.2002. C) CONTRACT FOR TRAINING OF AOPERATION AND MAINTENA NCE PERSONNEL DT. 2 NOVEMBER, 2002. 4. THE PAYMENTS MADE BY NPCIL TO ATOMSTROYEXPORT IN PURSUANCE OF THESE AGREEMENTS DURING THE PREVIOUS YEARS ARE AS U NDER: SR. NO. NAME OF CONTRACT TOTAL COST OF THE CONTRACT (IN US $ REMITTANCES MADE (IN INR) 1 OFFSHORE SERVICE CONTRACT 122,000,000 75,59,14,784 2. CONTRACT FOR DEPUTATION OF SPECIALISTS 40,000,000 13,36,54,610 3. OFFSHORE TRAINING CONTRACT 15,000,000 21,03,64,760 TOTAL 109,99,32,154 ITA NO.8073/M/2010 4 5. THE TOTAL PAYMENTS RECEIVED BY THE ASSESSEE SO F AR IN RESPECT OF SERVICE CONTRACTS FROM THE A.Y. 2003-04 TO A.Y. 200 8-09 (TILL OCTOBER 2007) ARE AS UNDER: SR. NO. NAME OF CONTRACT TOTAL COST OF THE CONTRACT (IN US $) TOTAL OF PAYMENTS MADE SO FAR (IN INR) A) OFFSHORE SERVICE CONTRACT 122,000,000 4,252,390,506 B) CONTRACT FOR DEPUTATION OF SPECIALISTS 40,000,000 1,163,156,803 C). OFFSHORE TRAINING CONTRACT 15,000,000 617,868,640 D) DETAILED PROJECT REPORT 36,21,52,430 TOTAL 6,395,568,379 6. THE ASSESSEE HAS CLAIMED APPLICABILITY OF THE PR OVISIONS OF SEC. 44BBB OF THE I.T. ACT IN RESPECT OF RECEIPTS FROM N PCIL AND HAS OFFERED TO TAX 10% OF THE TOTAL AMOUNT UNDER THE ABOVE CONT RACTS WHICH COMES TO RS. 10,99,93,415/- AT THE RATES AS APPLICABLE TO A FOREIGN COMPANY. NPCIL HAD WITHHELD TAXES @ 10% OF THE FEES PAID TO THE ASSESSEE. IN VIEW OF THE ABOVE, THE TAX DEDUCTED IN EXCESS OF TH E SAME HAS BEEN CLAIMED AS REFUNDABLE TO THE ASSESSEE FOR THE A.Y. 2006-07. 7. RETURN OF INCOME WAS FILED ON 29.10.2007 DECLARI NG A TOTAL INCOME OF RS. 10,99,93,415/-. THE RETURN WAS PROCESSED U/ S. 143(1) OF THE I.T. ACT. SUBSEQUENTLY THE CASE WAS REOPENED U/S. 147 O F THE ACT AFTER RECORDING THE REASONS FOR DOING SO. ACCORDINGLY, A NOTICE U/S. 148 WAS ISSUED ON 9.3.2009. THE ASSESSEE INFORMED THE ASSE SSING OFFICER VIDE LETTER DT. 9.3.2009 THAT THE RETURN FILED BY IT ON 20.10.2007 MAY BE TREATED AS FILED IN RESPONSE TO THE NOTICE U/S. 148 OF THE ACT. THE ASSESSEE ALSO ITA NO.8073/M/2010 5 ASKED FOR THE REASONS FOR REOPENING THE ASSESSMENT. THE REASONS RECORDED FOR REOPENING THE ASSESSMENT WHICH READ AS UNDER : WITH REFERENCE TO THE ABOVE, THE REASONS RECORDED FOR RE-OPENING ASSESSMENT ARE REPRODUCED AS UNDER FOR YOUR REFEREN CE: THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 12.1 1.2007 DECLARING A INCOME OF RS.10,99,93,4151/-. THE ASSESSEE IS RENDE RING SERVICES TO NUCLEAR POWER CORPORATION OF INDIA LTD. (NPCIL) U NDER THE FOLLOWING: (A) OFFSHORE SERVICES CONTRACT DATED 17 DECEMBER, 2001 B) CONTRACT FOR DEPUTATION OF CONTRACTORS SPECIALI STS AT SITE DATED 23 AUGUST 2002 (C) CONTRACT FOR TRAINING OF OPERATION AND MAINTENA NCE PERSONNEL DATED 2 NOVEMBER, 2002 THE ASSESSEE HAS CLAIMED APPLICABILITY OF THE PROVI SIONS OF SECTION 44BBB OF THE I.T. ACT TO THE FEES RECEIVED FROM NPCIL AND HAS OFFERED TO TAX 10% OF THE TOTAL AMOUNT RECEIVED FR OM NPCIL UNDER THE ABOVE CONTRACTS, AT THE RATES AS APPLICABLE TO A FOREIGN COMPANY. FOR THE PURPOSE OF THE PROVISIONS OF SECTION 44BBB, THE MOST IMPORTANT FACTOR IS THAT THE FOREIGN COMPANY SHOULD BE ENGAGED IN EITHER OF THE ACTIVITIES SPECIFIED IN THE SECTION 4 4BBB IN INDIA IN A TURNKEY PROJECT. ASE HAS A PERMANENT ESTABLISHMENT IN THE FORM OF A PROJECT OFFICE IN INDIA AT THE NUCLEAR POWER STATIO N AT KUDANKULAM, TAMILNADU REFERRED TO AS KUDANKULAM NUCLEAR POWER P ROJECT (KKNPP) FOR CARRYING OUT ITS ACTIVITIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2005-06, ON GOING T HROUGH THE VARIOUS DEFINITIONS AS STATED IN THE AGREEMENTS FOR THE CONSTRUCTION OR COMMISSIONING OR ERECTION, IT WAS FOUND THAT THE AS SESSEE COMPANY IS INVOLVED IN PROVIDING SERVICES FOR THE CONSTRUCTION , ERECTION AND COMMISSIONING IN INDIA. THE ACTUAL BUSINESS OF CONS TRUCTION AND ERECTION OF KKNPP IS BEING CARRIED OUT BY THE FOLLO WING CONTRACTORS ON BEHALF OF NPCIL: (A) CIVIL CONSTRUCTION IN THE REACTOR BUILDING, REA CTOR AUXILIARY BUILDING AND DYKES ARE DONE BY HINDUSTAN CONSTRUCTI ON CO. LTD. ITA NO.8073/M/2010 6 (B) CIVIL CONSTRUCTION AT THE TURBINE BUILDING AND OTHER AREAS ARE DONE BY SIMPLEX INDUSTRIES LTD. (C) MACHINERY ERECTION IN THE REACTOR BUILDING IS D ONE BY LARSEN & TOUBRO LTD. (D) MACHINERY ERECTION FOR THE TURBINE SECTION IS D ONE BY BHARAT HEAVY ELECTRICALS LTD. (E) DESALINATION PLANT IS EXCLUSIVELY BUILT BY TATA PROJECTS LTD. THUS, ASE PROVIDES TECHNICAL SERVICES AND SUPERVISI ON AT VARIOUS STAGES BUT IS NOT INVOLVED BY ITSELF IN THE BUSINESSES COVERED BY SECTION 44BBB. HENCE, IT WAS DETERMINED THAT THE PAYMENTS RECEIVED BY ASE ARE NOT ELIGIBLE TO BE ASS ESSED UNDER SECTION 44BBB OF THE I.T. ACT. THEREAFTER, FOR THE DETAILED REASONS DISCUSSED IN THE ASSESSMENT ORDER FOR A.Y. 2005-06 IT WAS HELD THAT RECEIPTS IN PURSUANCE TO THE OFFSHORE SERVICE S CONTRACT ARE IN THE NATURE OF ROYALTIES; AND IN PURSUANCE TO THE CONTRACT FOR DEPUTATION OF SPECIALISTS AND OFFSHORE TRAINING CONTRACT ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND ACCORDINGLY THE INCOME IS TO BE TAXED AT THE RATE OF 10% AS PROVIDE D IN ARTICLE 12 OF THE DTAA BETWEEN RUSSIAN FEDERATION (OF WHICH TH E ASSESSEE IS RESIDENT) AND INDIA.[ BOLD LETTERS BY US ] IN VIEW OF THE ABOVE FACTS, INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC.147 EX PLANATION 2(C) ON ACCOUNT OF FAILURE ON THE PART OF THE ASSES SEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR AS SESSMENT. THEREFORE, I HAVE REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC.147 EXPLANATIO N 2(C) AND IT IS A FIT CASE TO REOPEN ASSESSMENT. 8. SUBSEQUENTLY A NOTICE U/S. 143(2) AND 142(1) O F THE I.T. ACT ALONGWITH THE QUESTIONNAIRE WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE RAISED OBJECTION AGAINST REOPENING OF THE ASSESSMENT BEFORE THE DRP. THE DRP SUMMARILY REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE. THE ASSESSEE HAS STRONGLY CONTENDED THIS ACTION BEFORE US VIDE GROUND NO. 1. 9. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMIT TED THAT THE AO HAS NO REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ITA NO.8073/M/2010 7 ASSESSMENT WITHIN THE MEANING OF SEC. 147 OF THE AC T. IT IS THE SAY OF THE LD. COUNSEL THAT THE REOPENING IS BASED ON THE FIND INGS GIVEN BY THE AO IN THE ASSESSMENT ORDER FOR A.Y. 2005-06. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ADDITIONS MADE IN THE ASSESSMEN T ORDER FOR A.Y. 2005- 06 TREATING THE PAYMENTS RECEIVED BY THE ASSESSEE A S NOT ELIGIBLE TO BE ASSESSED U/S. 44BBB OF THE ACT WAS DELETED BY THE LD. CIT(A) VIDE ORDER DT. 13.1.2009. THE LD. COUNSEL SUBMITTED THAT THE COPY OF THE SAID ORDER IS EXHIBITED FROM PAGES 65 TO 81 OF THE PAPER BOOK. THE LD. COUNSEL STRONGLY CONTENDED THAT THUS THE AO HAD NO REASON T O BELIEVE THAT THE INCOME HAS ESTABLISHED ASSESSMENT AND THEREFORE THE ASSESSMENT MADE U/S. 147 IS BAD IN LAW AND DESERVES TO BE QUASHED. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF GERMAN REMEDIES LTD. 285 ITR 2 6 AND SUBMITTED THAT IN THAT CASE ALSO ONE OF THE REASONS FOR REOPE NING OF THE ASSESSMENT WAS THAT : PROCESSING CHARGES RECEIVED BY THE ASSESSEE FOR THE JOB WORK DONE FOR OTHERS OUT OF THE PROFIT FOR ALLOWING DEDUCTION U/S. 80IA/80IB HAS NOT BEEN EXCLUDED WHILE FINALIZING TH E ASSESSMENT . IT WAS BROUGHT TO THE NOTICE OF THE HONBLE COURT THAT IN ASSESSEES OWN CASE FOR A.Y. 1996-97, THE TRIBUNAL HAS HELD THAT T HE PROCESSING CHARGES RECEIVED BY THE ASSESSEE ARE LIABLE TO BE INCLUDED FOR THE PURPOSES OF DEDUCTION U/S. 80IA/80IB OF THE ACT. THE DECISION OF THE TRIBUNAL WAS VERY MUCH BEFORE THE AO. HOWEVER, THE AO DID NOT R EFERRED/FOLLOWED THE SAID DECISION. ON THESE FACTS, THE HONBLE H IGH COURT HELD THAT: THIS CONDUCT OF THE AO IN REFUSING TO FOLLOW THE B INDING DECISION OF THE ITAT IS HIGHLY DEPLORABLE THEREFORE REOPENING OF ITA NO.8073/M/2010 8 THE ASSESSMENT ON ACCOUNT OF PROCESSING CHARGES IS ALSO UNSUSTAINABLE.. THE LD. COUNSEL SUBMITTED THAT THE FACTS OF THE PRESENT CAS E ARE IDENTICAL TO THE FACTS OF THE CASE OF GERMAN REMEDIES (SUPRA) . IT IS THE SAY OF THE LD. COUNSEL THAT IN THE PRESENT CASE ALSO THE DECIS ION OF THE LD. CIT(A) FOR A.Y. 2005-06 WAS VERY MUCH AVAILABLE BEFORE THE AO. THE LD. COUNSEL ALSO RELIED UPON ANOTHER DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AGROVAT 323 ITR 97 WHE REIN THE COURT HAS FOLLOWED THE DECISION IN THE CASE OF GERMAN REMEDIE S AND HELD THAT THE AO HAS CLEARLY ACTED IN EXCESS OF THE RESTRAINTS ON HIS JURISDICTION TO REOPEN AN ASSESSMENT IN EXERCISE OF POWERS U/S. 14 7 R.W. SECTION 148 OF THE ACT. THE LD. COUNSEL FURTHER RELIED UPON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KAMALAKSHI FINANCE COR PORATION LTD AIR 1992 (SC) 711 WHEREIN THE HONBLE SUPREME COURT OBS ERVED AS UNDER: WITH THE FACT THAT THE OFFICERS, IN REACHING THEIR CONCLUSION, BY-PASSED TWO APPELLATE ORDERS IN REGARD TO THE SAM E ISSUED WHICH WERE PLACED BEFORE THEM, ONE OF THE COLLECTOR (APPEALS) AND THE OTHER OF THE TRIBUNAL. THE HIGH COURT HAS, IN OUR VIEW, RIGHTLY CRITICIZED THIS CONDUCT OF THE ASSISTANT CO LLECTORS AND THE HARASSMENT TO THE ASSESSEE CAUSED BY THE FAILURE OF THESE OFFICERS TO GIVE EFFECT TO THE ORDERS OF AUTHORITIE S HIGHER TO THEM IN THE APPELLATE HIERARCHY. IT CANNOT BE TOO VEHEMENT LY EMPHASIZED THAT IT IS OF UTMOST IMPORTANCE THAT, IN DISPOSING OF THE QUASI- JUDICIAL ISSUES BEFORE THEM, REVENUE OFFICERS ARE B OUND BY THE DECISIONS OF THE APPELLATE AUTHORITIES. THE ORDER OF THE APPELLATE COLLECTOR IS BINDING ON THE ASSISTANT COLLECTORS WO RKING WITHIN HIS JURISDICTION AND THE ORDER OF THE TRIBUNAL IS BINDI NG UPON THE ASSISTANT COLLECTORS AND THE APPELLATE COLLECTORS WHO FUNCTION UNDER THE JURISDICTION OF THE TRIBUNAL. THE PRINCI PLES OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGHER AP PELLATE AUTHORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIES. THE MERE FACT THAT THE ORDER OF THE APPELLATE AUTHORITY IS NOT ACCEPTABLE TO THE DEPARTMENT IN ITSELF AN OBJECTION PHRASE AND IS THE SUBJECT MATTER OF AN AP PEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLESS ITS O PERATION HAS BEEN SUSPENDED BY A COMPETENT COURT. ITA NO.8073/M/2010 9 10. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES SUBM ITTED THAT MERELY BY PASSING AN ORDER BY THE LD. CIT(A) DOES NOT OBLITE RATE THE FINDINGS OF THE AO TILL IT IS FINALLY ADJUDICATED. SINCE THE REVEN UE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL FOR A.Y. 2005-06, THE BE LIEF OF THE AO DOES NOT DEMOLISH LAWFULLY. IT IS THE SAY OF THE LD. DR THAT THE TWO LIMBS FOR REOPENING AN ASSESSMENT IS THAT (A) THE AO SHOULD H AVE REASON TO BELIEVE AND (B) AO HAS TO RECORD THE REASONS FOR THE SAME. SINCE THE AO HAS COMPLIED WITH THE BASIC CONDITION, THE REOPENING IS VERY MUCH AS PER LAW. 11. REFERRING TO THE DECISIONS CITED BY THE LD. COU NSEL, THE DR SUBMITTED THAT THE FACTS ARE DISTINGUISHABLE FROM T HE FACTS OF THE PRESENT CASE. PARTICULARLY REFERRING TO THE DECISION OF TH E HONBLE SUPREME COURT RELIED UPON BY THE LD. COUNSEL, THE DR SUBMITTED TH AT THE DECISION WAS RENDERED WITH REFERENCE TO THE CENTRAL EXCISE AND S ALT ACT WHERE THE REOPENING /REASSESSMENT PROCEEDINGS MAY BE DIFFEREN T FROM THE INCOME TAX ACT. THE DR CONCLUDED THAT THERE IS NO ERROR/I NFIRMITY IN THE REASSESSMENT PROCEEDINGS AND THE REASSESSMENT ORDER S DESERVES TO BE UPHELD. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, CAREF ULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT MA TERIAL EVIDENCES BROUGHT ON RECORD. IT IS AN UNDISPUTED FACT THAT T HE REOPENING OF THE ASSESSMENT IS TOTALLY BASED UPON THE REASONS DISCUS SED IN THE ASSESSMENT ORDER FOR A.Y. 2005-06, WHEREIN IT HAS BEEN HELD TH AT RECEIPTS IN PURSUANCE OF OFFSHORE SERVICES CONTRACT ARE IN THE NATURE OF ROYALTIES AND IN PURSUANCE TO THE CONTRACT FOR DEPUTATION OF SPEC IALISTS AND OFFSHORE TRAINING CONTRACT ARE IN THE NATURE OF FEES FOR TEC HNICAL SERVICES. NOTICE ITA NO.8073/M/2010 10 U/S. 148 IS DT. 9.3.2009 AND THE APPELLATE ORDER OF THE LD. CIT(A) FOR A.Y. 2005-06 IS DT. `13.1.2009 WHICH MEANS THAT THE VERY BASIS FOR REOPENING THE ASSESSMENT WAS STRUCK DOWN BY THE LD. CIT(A) ON 13.1.2009 WHICH ORDER WAS VERY MUCH AVAILABLE TO THE AO WHEN HE REC ORDED HIS REASONS FOR REOPENING THE ASSESSMENT .THE ASSESSMENT ORDER OF AY 2005 -06 STOOD MERGED WITH THE ORDER OF THE CIT[A]. THE PRI NCIPLES OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGHER AP PELLATE AUTHORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORI TIES. THE MERE FACT THAT THE ORDER OF THE APPELLATE AUTHORITIES IS NOT ACCEPTABLE TO THE DEPARTMENT IS IN ITSELF AN OBJECTIONABLE PHRASE AND IS A SUBJECT MATTER OF AN APPEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLESS ITS OPERATION HAS BEEN SUSPENDED BY A COMPETENT COURT. FOR THES E OBSERVATIONS, WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF KAMALAKSHI FINANCE CORPORATION (SUPRA). IT IS A LSO PERTINENT TO NOTE THAT THE AO HAS GIVEN APPEAL EFFECT TO THE ORDER OF THE LD. CIT(A) ON 5.3.2009 WHICH WAS ALSO PRIOR TO THE DATE OF ISSUIN G NOTICE U/S. 148 OF THE ACT. AS THE ENTIRE REOPENING WAS BASED ON WHAT HAP PENED IN ASSESSMENT YEAR 2005-06 THAT VERY BASIS BEING STRUCK DOWN BY T HE FIRST APPELLATE AUTHORITY, THERE WAS NO REASON BEFORE THE AO TO BEL IEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. 12.1. ANOTHER IMPORTANT FACTOR TO BE CONSIDERED IS THAT THE ASSESSMENT ORDER FOR A.Y. 2005-06 IS DT. 31.12.2007 AND THE RE TURN FOR THE IMPUGNED ASSESSMENT YEAR WAS FILED ON 29.10.2007 WHICH MEANS THAT THE AO HAD SUFFICIENT TIME TO TAKE THE RETURN UNDER SCRUTINY A SSESSMENT BY ISSUING NOTICE U/S. 143(2) OF THE ACT. IT APPEARS THAT HAVI NG MISSED THE PERIOD OF LIMITATION FOR ISSUING NOTICE U/S. 143(2). THE AO DEEM IT FIT TO ISSUE NOTICE U/S. 148 OF THE ACT ON THE BASIS OF THE FACT S OF A.Y. 2005-06. ITA NO.8073/M/2010 11 12.2. AS WE HAVE BROUGHT OUT THE FACTS HEREINABOVE THAT ON THE DATE OF THE ISSUE OF NOTICE U/S. 148 OF THE ACT, THE AO WAS VERY MUCH IN POSSESSION OF THE FIRST APPELLATE ORDER AND THE VER Y REASONS FOR REOPENING THE ASSESSMENT DID NOT SURVIVE BY VIRTUE OF THE FIN DINGS OF THE FIRST APPELLATE AUTHORITIES WHICH WERE BINDING UPON THE A O. IN OUR CONSIDERED OPINION, THE AO HAS GROSSLY ERRED IN REOPENING THE ASSESSMENT AND THE DRP FELL INTO THE SAME ERROR BY CONFIRMING THE SAME . CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE JUDICIAL DECI SIONS DISCUSSED HEREINABOVE, THE ASSESSMENT U/S. 147 PERSUANT TO TH E NOTICE U/S. 148 OF THE ACT IS SET ASIDE. GROUND NO. 1 IS ACCORDINGLY ALLO WED. 13. AS WE HAVE QUASHED THE REASSESSMENT ORDER, WE D O NOT FIND IT NECESSARY TO DWELL INTO THE MERITS OF THE CASE. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH DECEMBER, 2013 . 4 / 3' % 5 67 4.12.20133 / > SD/- SD/- ( B.R. MITTAL ) (N. K. BILLAIYA) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 6 DATED 04 /12 /2013 . . ./ RJ , SR. PS ITA NO.8073/M/2010 12 4 / ,0! ?!'0 4 / ,0! ?!'0 4 / ,0! ?!'0 4 / ,0! ?!'0 / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. @ ( ) / THE CIT(A)- 4. @ / CIT 5. !A> ,0 , , / DR, ITAT, MUMBAI 6. >B C / GUARD FILE. 4 4 4 4 / BY ORDER, -!0 ,0 //TRUE COPY// D DD D / E ) E ) E ) E ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI