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2016 (12) TMI 1663 - AT - Income TaxReopening of assessment - reasons to believe - Held that - 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. Whether the DRP has power to annual assessment? - Held that - DRP has power to adjudicate jurisdictional issues and has also has power to set aside any proposed variations. Accordingly the ground raised in the appeal by Department is dismissed.
Issues Involved:
1. Validity and sustainability of reassessment proceedings initiated by the Assessing Officer. 2. Whether the Dispute Resolution Panel (DRP) has the power to annul the assessment. Detailed Analysis: Issue 1: Validity and Sustainability of Reassessment Proceedings Background: The Department appealed against the directions of the DRP, Pune, which invalidated the reopening of the assessment for the Assessment Year 2005-06. The Assessing Officer (AO) initiated reassessment proceedings based on information from M/s. Sandvia Asia Ltd. (SAL) indicating payments to the assessee for IT support services. The AO believed this information constituted "tangible material" suggesting income had escaped assessment. Arguments by the Department: - The original assessment was framed under section 143(1), meaning the AO did not initially verify the details. - The AO later discovered from SAL’s records that the assessee received a significant payment, which was not previously scrutinized. - The DRP does not have the authority to annul the reassessment as per section 144C(5) and (8). Arguments by the Assessee: - The information used to reopen the assessment was already disclosed in Form 3CEB filed with the original return. - The payments were reimbursements of expenses, not income, thus not taxable. - There was no new tangible material; the AO merely reappraised existing information, which does not justify reopening under section 147. Tribunal's Findings: - The AO had no new tangible material to justify the reassessment. The information was already disclosed by the assessee in the original return. - The Hon’ble Delhi High Court in CIT Vs. Orient Craft Ltd. clarified that "reason to believe" must be based on new tangible material, even if the original assessment was under section 143(1). - The Hon’ble Bombay High Court in Khubchandani Healthparks (P) Ltd. Vs. ITO reiterated that reopening requires a valid "reason to believe" that income has escaped assessment. Conclusion: The Tribunal held that the reassessment proceedings initiated by the AO were without jurisdiction and not sustainable. The grounds raised by the Department were dismissed. Issue 2: Power of the DRP to Annul Assessment Background: The Department contended that the DRP exceeded its authority by annulling the assessment. According to the Department, the DRP can only confirm, reduce, or enhance the variations proposed in the draft order but cannot set aside the assessment. Arguments by the Assessee: - The DRP has wide powers under section 144C(5) to issue directions it deems fit for completing the assessment, which includes the power to annul. - The Hon’ble Bombay High Court in Vodafone India Services Pvt. Ltd. Vs. UOI & others supported the view that the DRP can adjudicate jurisdictional issues and annul assessments if necessary. Tribunal's Findings: - The Tribunal referred to the Hon’ble Bombay High Court’s decisions in Vodafone India Services Pvt. Ltd. cases, which clarified that the DRP has the power to annul assessments. - The DRP’s power to "confirm" includes the power not to confirm, which can be interpreted as the power to annul. Conclusion: The Tribunal affirmed that the DRP has the authority to annul assessments. The ground raised by the Department was dismissed. Additional Observations: - The Department’s contradictory positions in different cases regarding the DRP’s powers were noted. The Department cannot take opposing stands on the same issue in different forums. Cross Objections by the Assessee: - The assessee's cross objections became academic following the dismissal of the Department's appeal and were thus dismissed as infructuous. Final Order: The appeal by the Department and the cross objections by the assessee were both dismissed.
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