QUARTZELEC LIMITED,UNITED KINGDOM V. DEPUTY COMMISSIONER OF INCOME TAX, NEW DELHI

ITA 1942/DEL/2025

AI Insights

The case involves Quartzelec Limited, a UK-based company, appealing against an order by the Assessing Officer (AO) under Section 147 read with Section 144 of the Income Tax Act, 1961, for the Assessment Year 2018-19. The AO had initiated reassessment proceedings, alleging that certain receipts from Indian companies constituted 'Fee for Technical Services' (FTS) and were taxable under the India-UK Tax Treaty. The Tribunal examined whether the AO had the jurisdiction to include additional receipts from M/s Marathon Electric Motors (India) Limited and M/s Reliance Industries Limited in the reassessment, which were not mentioned in the initial reopening reasons. The Tribunal concluded that the AO had exceeded his jurisdiction, leading to the quashing of the assessment order.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 839840 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2018-2019
• Appeal Filed On: 27-03-2025
• Other Referred Cases: Ranbaxy Laboratories Ltd. vs. ICT (2011) 12 taxmann.com 74 (Del)
• Laws Referred To: Income Tax Act, 1961, India-United Kingdom Tax Treaty
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M.S. NETHRAPAL
• Assessee Lawyers: S.K. AGGARWAL; UTKARSH BANSAL
• Keywords: Reassessment proceedings; Gift; Reopening of assessment; TDS; Double taxation relief; Services rendered outside India
• Section: 147; 148; 142(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D : NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER ITA No.1942/Del/2025 Assessment Year : 2018-19 Quartzelec Limited, Castle Mound Way, Central Park, Rugby, CV230WB, United Kingdom. PAN: AAACQ2282K Vs. DCIT, Circle, International Taxation, 3(1)(1), New Delhi. (Appellant) (Respondent) Assessee by : Shri S.K. Aggarwal & Shri Utkarsh Bansal, CAs Revenue by : Shri M.S. Nethrapal, CIT-DR Date of Hearing : 16.01.2026 Date of Pronouncement : 24.02.2026 ORDER PER MADHUMITA ROY: The instant appeal filed by the Assessee is directed against the order dated 24.01.2025 passed by the Assessing Officer, Circle, International Taxation 3(1)(1), Delhi (hereinafter referred to as ‘the ld. AO’) under Section 147 r.w.s. 144 of the of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment Year 2018-19. Printed from counselvise.com ITA No.1942/Del/2025 2 2. Heard the parties and perused the record. The appellant is incorporated and is a tax resident of the United Kingdom and the provisions of India-United Kingdom Tax Treaty (UK Treaty) is applicable to the case in hand. The appellant is mainly engaged in the business of supply of rotating electrical machines including induction motors, terminal boxes, etc, and also provides maintenance services. The appellant did not file the return of income for AY 2018-19 as no income accrued/arose in India which was taxable as per the provisions of law. Subsequently, the reassessment proceedings u/s 147 of the Act was initiated by and under the issuance of notice under Section 148 of the Act dated 31st March, 2022 upon recording reasons that the assessee received a sum of Rs.95,31,000/- from M/s Star Wire India Ltd. (Star Wire) for the services rendered outside India has escaped assessment being in the nature of Fee for Technical Services under the Act and UK Treaty, the contents whereof is as follows:- “During the year under consideration, the assessee i.e. M/s Quartzelec Ltd. had received a sum of Rs. 9531000/- from M/s Star Wire India Limited as Payment of Engineering Services” and TDS was not deducted by M/s Star Wire India Limited on such payments even though the consideration received by the non-resident assessee are income that was chargeable to tax u/s 9(1)(vii) of the Act and relevant provisions of India-UK DTAA within meaning of Fees for Technical Services (FTS). Thus, the income of Rs. 95,31,000/- received M/s Star Wire India Limited had not been offered to tax, and no justification had been provided for the same.” 3. The AO made the addition of Rs.95,31,000/- as receipt on account of Fee for Technical Services in the hands of the assessee by the impugned order. It is also the case of the assessee that the draft assessment order was also passed Printed from counselvise.com ITA No.1942/Del/2025 3 without ignoring the following information/documents filed by the assessee, particularly, the Tax Residency Certificate, the relevant agreements with the Indian customers, corporate structure of the appellant company, the audited global consolidated financial statements for the year:- S.No. Date Details filed before the Ld. AO 1. 11 April 2022 E-mail response to show cause notice issued u/s 148A(b) of the Act dated 31 March, 2022. 2. 25 April 2022 E-mail response to the order dated 23 April 2022 along with the copy of the signed contract with the Star Wire 3. 19 September 2023 Response to the notice dated 13 September 2023 issued u/s 142(1) of the Act was duly submitted on e-filing portal and the following documents have been submitted before the Ld. AO: a) Copy of Tax Residency Certificate; b) Copy of relevant agreements with the Indian Customers; c) Corporate structure of the Appellant’s group; d) Audited global consolidated financial statements for the year 2020, 2021 and 2022; and e) Summary of transactions with the Indian customers along with copy of invoices, contracts, etc., to factually substantiate non-taxability of the receipts. 4. 15 March 2024 E-mail response to show cause notice dated 15 March 2024 with respect to the transaction with Marathon Electric Motors (India) Limited along with the copy of shipping invoice. 4. Against the said order, the appellant filed an objection before the Ld. DRP whereupon a remand report was called upon on 21st November, 2024 as those documents/information submitted by the appellant was not considered by the Ld. Printed from counselvise.com ITA No.1942/Del/2025 4 AO. Thereafter, the Ld. AO, in the remand report itself accepted that the disputed amount of Rs.95,31,000/- received from Star Wire was in respect of the services rendered at Bloom and Billet Mill at British Steel’s Scunthorpe site (UK) and the same is not taxable in India under Section 9(1)(vii)(b) of the Act. In that view of the matter, the first contention of the assessee is that the reason for reassessment is not sustainable. Apart from that, as per the AO’s order, the payment received by the assessee from M/s Marathon Electric Motors (India) Limited (Marathon) to the tune of Rs.22,75,000/- and from M/s Reliance Industries Limited (Reliance) to the tune of Rs.7,85,139/- found to be taxable by the AO is not sustainable in the eyes of law having regard to the particular fact that the reason for reopening of assessment does not speak about these two receipts by the assessee from these two parties; as the same is not figuring in the reason recorded in the reopening proceedings on account of receipt from these two parties the addition on this count does not and cannot arise and, therefore, the same is liable to be deleted. In this regard, the Ld. counsel appearing for the assessee relied upon the judgement passed by the Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs. ICT (2011) 12 taxmann.com 74 (Del). 5. Under the facts and circumstances of the matter, we have, therefore, proceeded to consider the order passed by the authorities below wherein the remand report forwarded by the Ld. AO to the First Appellate Authority is found Printed from counselvise.com ITA No.1942/Del/2025 5 to have prime importance as the receipt of Rs.95,31,000/- from M/s Star Wire which was found to be Fee for Technical Services as per Section 9(1)(vii) of the Act by the AO in the draft assessment order has subsequently been reversed by acceptance of the same in favour of the assessee as the services have been found to have been rendered by a non-resident outside India which are also utilized outside India, the source of which is outside India and the payment is also made outside India. We find from page 7 of the assessment order the following facts in regard to the receipt and the comments thereon by the Ld. AO in the remand report and the direction of the Hon’ble DRP:- Particulars Amount (in Rs.) Comments in the remand report Directions of Hon’ble DRP Payments received from M/s Star Wire Ltd. 1,22,85,000 Non-taxable Non-taxable Payments received from M/s Marathon Electric Motors (India) Ltd. 22,75,000 Taxable Taxable Payments received from M/s Hazira LNG Pvt. Ltd. 1,09,000 Non-taxable Non-taxable Payments received from M/s Reliance Industries Ltd. 7,85,139 Taxable Taxable 5.1 Thus, having regard to this particular aspect of the matter, the addition made in the hands of the assessee by the impugned order of assessment is found to be bad in law. 6. Further that, admittedly, the receipts from M/s Marathon Electric Motors (India) Ltd. and from M/s Reliance Industries Ltd. are not found to be part of the reasons recorded for reopening the assessment under Section 147/148 of the Act Printed from counselvise.com ITA No.1942/Del/2025 6 as it is evident from the first page of the assessment order u/s 147/148 of the Act dated 24.01.2025. Thus, the question before us is whether on these facts and circumstances of the matter, the same can at all be considered in the reopening proceedings impugned before us. It is a trite law that the exercise of jurisdiction of the Ld. AO for reopening under Section 147/148 of the Act is restricted to the reason recorded by him and exercising jurisdiction beyond that recording is nothing, but, an over action on the part of the authorities below, particularly, the Ld. AO and any kind of proceedings thereunder is not sustainable in the eyes of law due to lack of jurisdiction in the hands of the AO. On this premise, we have further considered the judgement relied upon by the Ld. AR appearing for the assessee in the case of Ranbaxy Laboratories Ltd. (supra) whereby and whereunder on this legal aspect, the Hon’ble Delhi High Court has been pleaded to observe as under:- “20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80 HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make dis-allowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per explanation 3 to reduce the claim of deduction under Section 80 HH and 8-I as well. 21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of Revenue and the second part of the question against the Revenue.” Printed from counselvise.com ITA No.1942/Del/2025 7 7. Thus, under the facts and circumstances of the matter, the Ld. AO is found to have over-exercised his jurisdiction in regard to the receipt from M/s Marathon Electric Motors (India) Limited and from M/s Reliance Industries Limited when the initiation of proceedings was admittedly not on that count by recording reasons; the issues were never before the Ld. AO to reopen and, thus, to proceed with the same and finalise the assessment on this count holding it fees for technical services and Royalty chargeable to tax is found to be without jurisdiction, void ab initio and, therefore, liable to be quashed. With the aforesaid observations, we quash the assessment order passed by the Ld. AO impugned before us. 8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 24.02.2026. Sd/- Sd/- (SANJAY AWASTHI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 24th February, 2026. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi Printed from counselvise.com "