TMI Blog2013 (11) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act dt.31.3.2005 issued by the Assessing Officer to TESA on behalf of the assessee company is bad in law and all subsequent proceedings culminating in the passing of the order of assessment would not the test of judicial scrutiny. In this view of the matter, the order of assessment passed u/s.143 r.w.s. 147 of the Act on 31.3.2006 for Asst. Year 2002-03, based on the invalid notice issued u/s.148 of the Act on 31.3.2005 is cancelled - Following decision of Commissioner Of Income-Tax, Bombay City III Versus Belapur Sugar And Allied Industries Limited [1981 (9) TMI 19 - BOMBAY High Court] - Decided in favour of assessee. It is undisputed that the notice under section 148 of the Act dt.31.3.2005 for Assessment Year 2002-03 is issued in the name of TESA, as an agent of the assessee company, whereas the order of assessment for the said period was passed in the name of the assessee company instead of being concluded in the hands of the Indian company i.e. TESA as an agent of the assessee company. In our view, this action on the part of the Assessing Officer is not curable. It is a well settled position of law that the notice cannot be regarded as a mere procedural requirement. Rath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A)-IV, Bangalore has been preferred by revenue. Since both the cross appeals by the assessee and revenue are arising out of the same common order of the ct dt26.3.2009 for Asst. Year 2002-03, they were posted together for hearing. 2. The assessee in its appeal in ITA No.656/Bang/2009 has challenged the order of the learned CIT(A) basically on two counts : (i) On legal issues; and (ii) On issues on merits of the matter. The assessee had originally filed elaborate grounds of appeal, but subsequently filed concise grounds of appeal on the direction of the Tribunal. The concise grounds filed by the assessee are as under : "1. The order of the learned Commissioner of Income Tax (Appeals)-IV in so far as it is against the appellant, is opposed to law, equity, weight of evidence, facts and circumstances of the case. 2. The learned CIT (Appeals) erred in not holding that the assessment was barred by limitation of time. 3. The learned CIT (Appeals) failed to appreciate that it is not in accordance with law to issue a notice to one person and pass the assessment order and demand notice under section 156 of the Income Tax Act, 1961 ('the Act') i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 12 of Double Taxation Avoidance Agreement between India and Belgium ('DTAA'). 13. The learned CIT (Appeals) failed to appreciate that the appellant did not 'made available' any technology, knowledge etc and the impugned claim would not fall within the purview of 'fees for technical service' under the DTAA. 14. Without prejudice to the above, the learned CIT (Appeals) ought to have held that the invoices under the Engineering Assistance Agreement and the Legal and Financial Assistance Agreement, for which claims were made, if at all the same were taxable, can only be taxed in the year during which the services were rendered and not in the impugned assessment year. 15. The learned CIT (Appeals) failed to adjudicate the alternate ground on issue of levy of interest under section 234B of the Act. He erred in not holding that the rate of interest under section 234B, if any, ought to be computed @ 1% per month, being the rate prevailing on the date of passing the assessment order. He further erred in not holding that interest leviable, if at all, ought to be computed with reference to the returned income. Further, the period for which the same has been levied is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment Cost'. In March, 2001, pursuant to differences of opinion between the assessee and Jindal Strips Ltd., the assessee initiated international arbitration proceedings before the International Chamber of Commerce (ICC) against JTPCL for violation of the terms of the Share holders Agreement, the Engineering Assistance Agreement and the Legal and Financial Agreement. In May, 2001, the Jindal Group also filed counter claims before the ICC. The various claims made by the assessee against JTPCL towards development costs / expenses amounted to Rs. 32.02 Crores. In Sept., 2001, the assessee and the Jindals entered into negotiations and resolved the dispute by mutually consenting to certain terms and conditions viz., that the Jindals buyout STSA; that STSA was to receive a suitable settlement amount and that Tractabel Energy South Asia (TESA) act as a conduit for the transaction between STSA and the Jindals. The assessee then transferred its 144,500,000 shares in JTPCL to TESA for a consideration of US $ 55,000,000 (equivalent to Rs. 2610,300,000 which worked out to Rs. 18.06 per share). 3.3 For Asst. Year 2002-03, the period under consideration, the assessee filed its return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has preferred an appeal before in respect of issues held against it. Revenue has also preferred a cross appeal in so far the order of the learned CIT(A) is against it. LEGAL ISSUES RAISED BY ASSESSEE IN GROUND NOS.2 TO 6. 5.0 In the course of hearings before us, the learned A.R. was requested to put forth the arguments of the assessee on legal issues raised, which have been argued at length and have also been summarized on the issue of validity of the assessment for A.Y. 2002-03. The learned A.R. filed a synopsis of the contentions of the assessee on the legal issues raised which are as under : (i) Whether notice can be issued to an agent (TESA) and the consequent assessment can be made on STSA ? ; (ii) Whether there is a need to pass an order u/s. 163(2) of the Act before issuing notice u/s.148 of the Act ? ; (iii) Whether the communication of the reasons for initiating proceedings u/s. 147 of the Act, require to be done by the Assessing Officer before the completion of the assessment proceedings ? ; (iv) Whether the assessment for A.Y. 2002-03 is barred by limitation as the order has not left the control of the officer before 31.3.2006 ? ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 163 of the Act. The learned A.R. drew our attention to the provisions of section 163 of the Act. It was pointed out by the learned A.R. that page No.31 of the paper book compilation which was a copy of the show cause notice dt.30.3.2005 issued to TESA by the A.O. asking TESA to explain as to why it should not be treated as an agent of the assessee company as per the provisions of section 163(2) of the Act and requiring TESA to appear on the very next day i.e. 31.3.2005 for availing an opportunity of being heard in the matter. It was submitted by the learned A.R. that, in this connection, the Authorised Representative of TESA appeared before the A.O. and requested additional time to furnish their submissions in rebuttal of the assessing officer's view, and time was granted by the assessing officer, upto the end of April, 2005, for furnishing the assessee's objections to the show cause issued u/s.163(2) of the Act. It was further submitted by the learned A.R. that there was no hearing on this aspect at all thereafter. Subsequently, on the very next day i.e. 31.3.2005, a notice u/s.148 of the Act was issued in the name of TESA as an agent of the assessee company wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th by the learned A.R. that for treating a person as an agent of any other person an order has to be passed u/s.163(2) of the Act after affording such person an opportunity of being heard in the matter. In this regard it would be relevant to reproduce the provisions of section 163 of the Act for proper appreciation : "Who may be regarded as agent. 163. (1) For the purposes of this Act, "agent", in relation to a non-resident, includes any person in India (a) who is employed by or on behalf of the non-resident; or (b) who has any business connection with the non-resident; or (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or (d) who is the trustee of the non-resident; and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India : Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax International Taxation Circle 19(1), Bangalore." ORDER SHEET NOTING "31.3.2005 Mr. Vishweshwar Mudigouda,Senior Manager, BSR and Co. appeared along with Mr. D.S. Vivek, CAPITAL ASSETS and Mr. Krishnan Narayana, Senior Manager of B.S.R. and Co., Power of Attorney filed. Time is required to file a reply to the office letter dt.30.3.2005. To file reply by April end. Sd/- Sd/- Sd/- Sd/- 31.3.2005 31.3.2005 31.3.2005 31.3.2005" From the above, it is clear that the show cause notice for treating TESA as an agent of STSA u/s.163(2) of the Act was issued on 30.3.2005 (supra) giving TESA time upto 11 AM on 31.3.2005 to furnish its reply thereto. From the order sheet noting (supra), we find that on 31.3.2005, the Indian Company i.e. TESA made a representation before the Assessing Officer seeking more time to file the reply to the show cause notice dt.30.3.2005. In the order sheet noting, it is seen that the Assessing Officer granted TESA time till the end of April, 2005 to file its rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugar Allied Industries Ltd. (supra) " .. In our view, the Tribunal was right .. invalid, as the Tribunal has done." In the case of Express Newspapers (P.) Ltd. (supra), the Hon'ble Madras High Court was of the view that before a person is treated as an agent of the foreign company, a written order is to be passed. The head notes of the said decision at page 348 of the judgment is extracted and reproduced as under : Repr at page 348, Express Newspapers (P.) Ltd. (supra) " Held, .for levying penalty ." 8.5 It is a settled principle of law that before treating a person as an agent u/s.163 of the Act, it is necessary u/s.163 of the Act for the Assessing Officer to issue a notice to the concerned person informing him of his intention to treat that person as the agent of a non-resident and to pass an order treating him as an agent of the non-resident only after hearing such person in the matter. In the case on hand as admitted by the learned D.R. and also after perusing the records, it is seen that no there is no order passed by the Assessing Officer u/s.163 of the Act treating TESA as an agent of the assessee company for A.Y. 2002-03. Consequently, the notice u/s.148 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n one person i.e. TESA an Indian Company, who is an agent of STSA, the assessee company and the assessment order for A.Y. 2002-03 dt.31.3.2006 passed on the assessee company and not on the agent, TESA, is a curable defect. The learned D.R. also argued that since the assessee company has participated in the assessment proceedings, then such procedural lapses are only an irregularity and a curable defect which would not be fatal for the assessment order. 11. We have heard both parties at length and carefully perused and considered the material on record and the judicial decisions cited. Admittedly and also as per the records, it is undisputed that the notice under section 148 of the Act dt.31.3.2005 for Assessment Year 2002-03 is issued in the name of TESA, as an agent of the assessee company, whereas the order of assessment for the said period was passed in the name of the assessee company instead of being concluded in the hands of the Indian company i.e. TESA as an agent of the assessee company. In our view, this action on the part of the Assessing Officer is not curable. It is a well settled position of law that the notice cannot be regarded as a mere procedural requirement. Rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of assessment proceedings in spite of them be sought and asked for by the assessee. The learned Authorised Representative submitted that the reasons recorded were not made available to the assessee company in the case on hand in spite of it responding to the notice issued under section 148 of the Act dt.31.3.2005 and reportedly asking for the same so that it could make a proper rebuttal of such reasons recorded. The learned Authorised Representative drew our attention to pages 33, 36, 37, 825 and 960 of paper book compilation filed by the assessee wherein the assessee company requested the Assessing Officer to provide it with the entire reasons recorded for reopening the assessment under section 147 of the Act as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19/[2012] 125 Taxman 963. The learned Authorised Representative contended that the Assessing Officer letter dt.24.6.2005 at page 37 of the assessee's paper book compilation, which the learned Departmental Representative relied on, cannot by any stretch of imagination be considered, as communication of the reasons recorded by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Tata International Ltd. v. Dy. CIT [2012] 52 SOT 465/23 taxmann.com 18 (Mum.) (iv) CIT v. K.Y. Venkataswamy Reddy [IT Appeal Nos. 797, 798, 807 808 (Bang.) 2009, dated 21-5-2010]. (v) Synopsys International Ltd. v. Dy. CIT [IT Appeal No. 549 (Bang.) of 2011, dated 10-12-2012]. The learned Authorised Representative contended that the issue in question is squarely covered by the decisions of the co-ordinate benches of the ITAT, Bangalore in the case of K.Y. Venkataswamy Reddy (supra) and Synopsys International Ltd. (supra). The learned Authorised Representative brought to our notice that in the case of Synopsys International Ltd. (supra), the reasons recorded by the Assessing Officer was not provided to the assessee before the completion of assessment proceedings, but were made available to the assessee by the learned CIT(Appeals) in the course of appellate proceedings and the Tribunal held that non-furnishing of reasons recorded to the assessee before completion of assessment proceedings renders the order of assessment invalid and unsustainable in law. 13. Per contra, the learned Departmental Representative submitted that the reasons recorded for initiating pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e letter dt.24.6.2005 relied on by the learned Departmental Representative cannot be construed as the communication of reasons recorded to the assessee. In this context it would be relevant to extract and reproduce hereunder the Assessing Officer's letter which would clarify the position as to the communication of the reasons as recorded by the Assessing Officer to the assessee. "OFFICE OF THE ASSISTANT COMISSIONER OF INCOME TAX INTERNATIONAL TAXATION, ;CIRCLE 19(1), BANGALORE Chowgule house, II Floor, No.18,Crescent Road Bangalore. F. No. ACIT/C-19(1)/Tractebel S.A./05-06 Dt.30.3.2005 To M/s. Tractebel S.A. Belgium Agent M/s. Tractebel EnergySouth Asia Private Limited, C/o Suresh Co. 43/61, 'Srinidhi' 1st Floor, Surveyors Street, Basavanagudi, Bangalore-560 004 Sir, Sub : Notice u/s. 148 of the Income Tax Act, 1961 dt.31.3.2005 Asst. Year 2002-03 - Your Own - Reg. Ref : Your CA BSR Cos., letter dt.22.06.2005. With reference to the above, since the Assessing Officer had reasons to believe that income of M/s. Tractabel S.A. Belgium to the tune of atleast Rs. 32.02 Crores has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spose off by way of a speaking order thereon. 14.4 In the case on hand, we find that the assessee had filed its return of income for Assessment Year 2002-03 on 28.10.2002. In response to the notice under section 148 of the Act dt.31.3.2005, the A.R. of the assessee vide letter dt.27.4.2005 requested the Assessing Officer to treat the return filed on 28.10.2002 as having been filed in response to the notice issued under section 148 of the Act and therein also requested for provisions of the reasons recorded for initiating proceedings under section 148 of the Act. The failure of the Assessing Officer in providing the assessee with the reasons recorded for initiation of proceedings under section 148 of the Act, within a reasonable period of time so that the assessee could efficiently represent / file objections to the same is, in our opinion, amply evident beyond any doubt from the facts on record and our observations thereon. The fact of non-provision of the reasons recorded for initiation of proceedings under section 147 / 148 of the Act before the completion of assessment proceedings for the relevant period and the furnishing of the said reasons recorded at the appellate stage by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Tribunal in the case of Synopsys International Ltd. (supra) is squarely applicable to the facts of the instant case of the assessee. In the case on hand also, the reasons recorded by the Assessing Officer for initiating proceedings under section 147 / 148 of the Act were not furnished to the assessee by the Assessing Officer during the pendency of assessment proceedings, in spite of being requested to do so by the assessee's letter dt.27.4.2005, 22.6.2005 and 27.3.2006. The reasons as recorded by the Assessing Officer were furnished to the assessee by the learned CIT(Appeals) by letter dt.13.2.2009 as recorded in his appellate order at para 4.3 at page 11 thereof. In view of the undisputable fact that the reasons recorded by the Assessing Officer for initiating proceedings under section 148 of the Act for Assessment Year 2002-03 were never furnished to the assessee before the computation of assessment proceedings, the subsequent furnishing of the said reasons recorded by the learned CIT(Appeals) by letter dt.13.2.2009, about 45 months after the request was made by the assessee, does not achieve any purpose or mitigate the illegality of the action of depriving the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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