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TMI Blog2011 (8) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee under the Act since the financial year 1985-86 and is being assessed to income-tax. 3. For the assessment year 2003-04, the petitioner filed the return of income on 29-11-2003 declaring a total income of Rs. 10,20,75,480 offering its gross revenue to be taxed under section 45 BB of the Act since the petitioner was being assessed under section 44 BB of the Act in the previous years. The Assessing Officer issued a notice, dated 13th April, 2004 under section 143 (2) of the Act indicating to the petitioner that it has reasons to believe that the return filed by the petitioner was incorrect and inadmissible and directed the petitioner to supply particulars and documents in support of such claim. The petitioner filed his reply, dated 22-11-2005 and 28-11-2005 furnishing the details and the information in response to the queries made by the Assessing Officer. The Assessing Officer, after examining the return of the income and other documents and the replies filed by the petitioner and, after applying its mind, issued an assessment order dated 29-11-2005 under section 143 (3) of the Act. 4. The matter did not end here. After a lapse of more than four years, the Deputy Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fts (India) Ltd. v. Income-tax Officer [2003] 259 ITR 19 wherein the Supreme Court held :- "We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." 8. Accordingly, on receipt of the reasons recorded by the Assessing Officer, the petitioner filed its objections to the initiation of the re-assessment proceedings submitting therein that the proceedings so initiated were without jurisdiction and illegal contending that there was no new material or opinion w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sri P.R. Mullick, Advocate for the petitioner in WPMS Nos. 2196/2010, 2197/2010, 2228/2010, 2229/2010, 2230/2010, 2242/2010, 2243/2010, 2244/2010, 2245/2010, 2247/2010, 2248/2010, 2249/2010, 2250/2010 and 2251/2010, Sri Salil Kapoor, Advocate with Sri Chetan Joshi, Advocate for the petitioner in WPMS Nos. 2129/2010, 2138/2010, 2139/2010 and 2193/2010, Sri M.S. Syali, Senior Advocate assisted by Sri Chetan Joshi, Advocate for the petitioner in WPMS Nos. 2140/2011, 2141/2010, 2149/2010 and 2150/2010 and Sri Manoj Tiwari, Senior Advocate assisted by Sri Rishabh Maheshwari and Sri K.K. Tiwari, Advocates for the petitioner in WPMS No. 2218/2010 and Sri Arvind Vashisth, Advocate with Mrs. Monika Pant, Advocate for the respondent/Income-tax Department. 12. The contention of the petitioner is, that the notice issued under section 148 of the Act and the proceedings initiated pursuant to the said notice was without jurisdiction. The petitioner contends that the Assessing Officer having "reasons to believe" that the income of the petitioner had escaped assessment was patently illegal and was not based on any material whatsoever for the formation of its reasons to believe. It was further cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication of mind. 15. Before proceedings further, it would be appropriate to peruse sections 147 and 148 of the Act which is extracted hereunder:- "147. Income escaping assessment.-If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. [Provided that in a case - (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) Subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case - (a) where a return has been furnished during period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material facts necessary for the assessment of the relevant assessment years, no action could be taken by the Assessing Officer. 19. According to the petitioner, it is imperative that the Assessing Officer must have a "reason to believe" that income chargeable to tax has escaped assessment. This "reason to believe" must be a genuine belief and must be based on some material that has come to the notice of the Assessing Officer and must not represent a mere change in opinion. 20. In Ganga Saran & Sons (P.) Ltd. v. Income-tax Officer [1981] 130 ITR 1, the Supreme Court held : "It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income-tax Officer can assume jurisdiction to issue notice under section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition, therefore, is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of "underassessment", that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notices under section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts." 23. In the light of the aforesaid, where a notice is issued within four years from the end of the relevant assessment year, the jurisdiction on the Assessing Officer is conferred when he has reasons to believe that income chargeable to income tax has escaped assessment. Explanation 2 provides the following shall be deemed to be cases where income chargeable to tax has escaped assessment namely, where no return of income has been furnished by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antiate his satisfaction in the reasons recorded by him. If such reasons recorded discloses a mere change of opinion, in that event, the assessment proceedings could not be initiated. 26. In CIT v. Saipem SPA [2008] 300 ITR 133, a Division Bench of this Court held that if there was no fault on the part of the assessee, the delay could not be condoned and that the limitation for initiating the proceedings would come to an end after four years. The High Court held:- "From the perusal of the facts it is clear that there was no fault of the assessee. Therefore, the Income-tax Appellate Tribunal and the Commissioner of Income-tax (Appeals) were right on the application of Explanation 2(c)(ii) of section 147 of the Income-tax Act. Even if it is deemed to be the escaped assessment within the meaning of Explanation 2(c)(ii) of section 147, then in view of the undisputed fact that there was no fault of the assessee, the delay could not be condoned. Limitation comes to an end even under the proviso appended to section 147. Limitation of four years had already been expired. Therefore, the amendment in the original assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of that assessment year so as to establish a vital link between the reasons and the evidence. The Court further held that the reasons recorded by the Assessing Officer could not be supplemented. The Bombay High Court held: "The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the assessing officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial facts necessary for the assessment. Though in the reasons recorded, the respondent has stated so, apparently, the said statement does not merit acceptance for the simple reason that if all material facts had not been fully and truly disclosed by the assessee, there was no occasion for the Assessing Officer to frame the assessment under section 143 (3) of the Act by allowing the claim of the assessee. In fact, the law, as it then stood was understood identically both by the assessee and the Assessing Officer. Merely because subsequently the Apex Court pronounced the law to be otherwise, on the date of filing of the return of the income when the assessee made a claim for deduction, the claim could not be termed to be either lacking in material particulars or could not be termed to be untrue. In other words, all the material facts were fully disclosed and no false facts were stated in support of the claim made. The reasons recorded themselves show that the Assessing Officer has changed his opinion only on the basis of subsequent judgment rendered by the apex court." 31. A Similar view was reiterated by a Division Bench of Delhi High Court in CIT v. SIL Investment Ltd. [Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as issued on the ground that the tax audit report was not noticed by the Assessing Officer while passing the original assessment order. The Full Bench of the Delhi High Court held :- "We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the assessing officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself. We also cannot accept submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded on analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee, then merely because he did express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse." 38. Reverting to the merits of the case, the controversy revolves upon the provisions of section 44BB, 44D, section 9, section 115A and section 44DA of the Act. 39. During the period in question, the petitioner had received revenues from Reliance Industries Ltd., Pride Foramer SAS, BG Exploration & Production India Ltd, ONGC, Niko Resources Ltd, etc. on account of providing services and facilities in connection with the exploration and extraction of and production of mineral oil. The petitioner offered the revenues received from these Companies for taxation under section 44BB of the Act. The Assessing Officer, after considering the material placed before it and considering other factors and after due verification and enquiry, passed an assessment order, dated 29-11-2005 under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees for technical services, would be at the rate of thirty per cent if such fees is received in pursuance of an agreement made on or before 31-5-1997 and 20% where such fees for technical services are received in pursuance of an agreement made after 31-5-1997. 45. Under the existing provisions contained in section 44BB, 44D, section 115A and under Explanation II of section 9(1)(vii) of the Act, it was open to the Assessing Officer to tax the petitioner either under section 44BB or 44D or under section 9(1)(vii) on the basis of the material produced before him. Relevant and primary facts were placed before the Assessing Officer. The Assessing Officer applied its mind to the facts of each case. The Assessing Officer considered the documents filed by the assessee and after due verification and enquiry, came to the conclusion that the assessee was liable to be taxed under section 44BB which was accepted by the assessee. 46. A perusal of the assessment order of the petitioner in Writ Petition No. 2197 of 2010, indicates that the Assessing Officer has considered 29 contracts / agreement entered by the petitioner with others relating to providing services and facilities in connection w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4DA w.e.f. 1-4-2011. 51. In the light of the aforesaid, the contention of the revenue is, that the services contemplated under section 44BB are services other than those coming within the purview of Explanation 2 to section 9(1)(vii) of the Act. The services extended by the petitioner falls under Explanation 2. Consequently, the income by way of fees for technical services chargeable under section 9(1)(vii) has to be computed under section 44DA of the Act. 52. To recapitulate, the reasons given for initiating proceeding under section 148 of the Act is : (a) that the services rendered are technical in nature and is liable to be taxed as a fee for technical services in view of the decision of the Uttarakhand High Court in the Case of CIT v. O.N.G.C. (Foramer France) [2008] 299 ITR 438, and (b) Explanatory Note to the Finance Bill indicating that the combined effect of the provision of sections 44BB, 44DA and 115A is that the income of a non-resident is in the nature of fee for technical services, and that it is taxable under the provision of section 44DA or section 115A irrespective of the business to which it relates. 53. In view of the decision of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer, could not, at another point of time, by forming another opinion on the primary facts, arrive at a conclusion that he had committed an error in computing the taxable income of the assessee and reopen the assessment proceedings. This view of the Court is fortified by a decision of the Delhi High Court in Jindal Photo Films Ltd. v. Dy. CIT [1998] 234 ITR 170/[1999] 105 Taxman 386. 56. As stated earlier, the combined effect of the provisions of sections 44BB, 44DA and 115A of the Act will not have a bearing to the cases in hand inasmuch as the Explanatory Note to the Finance Bill, 2010 clearly indicates that the amendments proposed in section 44BB and 44DA of the Act would take effect from 1st April, 2011 and would apply in relation to the assessment year 2011-12 and subsequent years. The amendment is prospective in nature and would not apply to the cases in hand which is of the earlier assessment years. Under the existing provisions contained in section 44BB, 44D, section 115A and Explanation II of section 9(1)(vii) of the Act, it was open to the Assessing Officer to tax the petitioner either under section 44BB or 44D or under section 9(1)(vii) of the Act on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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