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The Principal Officer, LG Electronics Pvt. Ltd. Versus Asst. Commissioner of Income Tax And Another

2015 (4) TMI 845 - ALLAHABAD HIGH COURT

Reopening of assessment - non stating any failure on the part of the assessee to disclose complete and full facts/concealment of facts is bad as submitted by assessee - Held that:- It is in respect of items mentioned at serial no. 2 i.e. payments made to L.G. Electronics, Korea, there is no disclosure with regards to non-resident company having P.E. In India as has been found after survey and as affirmed up to the High Court. We are satisfied that because of non-disclosure of the fact qua the L. .....

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acts in respect of L.G. Electronics, Korea having a P.E. In India to which payments have been made. Thus there is a nexus between the reasons recorded and the belief that income had escaped assessment because of fully and truly information having not been furnished by the assessee. The Assessing Officer has given valid reasons to believe that income had escaped assessment. No illegality in the notice issued under Section 148 - Decided against assessee. - Writ Tax No. - 177 of 2014, Writ Tax No. .....

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x Act, 1961 (herein after referred to as the 'Act, 1961') wherein it has been stated that the officer has reasons to believe that the income chargeable to tax at the hands of the assessee for the year 2006-07 has escaped assessment within the meaning of Section 147 of the Act, 1961 in respect of which the assessee was assessable. The assessee was called upon to submit the return of the income within 30 days for which he is assessable in the said year. The notice has been enclosed as Anne .....

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e dis-allowable u/s 40 (a) (i) of the Income Tax Act. The details of the remittances made by the Company are as follows : Sl. No. Description of transaction F.Y. 2005-06 1. Import of raw material and consumables, service spares and spare parts 3,134,465,989/- 2. Import of finished goods 2,003,499,385/- 3. Import of capital goods 29,153,894/- 4. Export Commission paid 99,157,209/- 5. Reimbursement of Expenses 119,094/- TOTAL 5,26,63,95,571/- In view of the above facts I have reason to believe tha .....

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ground that the assumption of jurisdiction by the respondent authorities was bad as the basic requirements of Section 147 of the Act, 1961 were not satisfied. It has been stated that initiation of re-assessment proceedings beyond a period of four years as provided for under proviso to Section 147 of the Act, 1961 without stating that any income has escaped assessment on account of any failure on the part of the assessee to disclose complete and full facts/concealment of facts is bad. Shri S.Gan .....

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vs. CIT reported in 308 ITR 38 and DTDC vs. ACIT reported in 324 ITR 234. Counsel for the petitioner also contended that at the time of assessment the petitioner assessee had furnished all the particulars in the balance-sheet along with the original return. Assessment was made considering these details. Mere change of opinion cannot be the basis for re-opening of a complete assessment and does not confer jurisdiction for proceeding under Section 147 of the Act, 1961. It is his case that all the .....

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only thereafter that the assessment proceedings were completed. Lastly it is submitted that the objections filed by the petitioner in the matter of existence of reasons to believe under Section 148 of the Act, 1961 have been disposed of by a non-speaking order dated 28.02.2014. Counsel for the assessee has referred the following judgements : 1. Lamna Lal Kabra v. Income Tax Officer (69 ITR 461). 2. CIT v. Pardeshiya Industrial & Investment Corp. of U.P. Ltd. (186 Taxmann 131 (All.). 3. Vodaf .....

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tha Chemicals Pvt. Ltd. And Others v. CIT and Another (271 ITR 113). 10. Gwalior Rayon Silk Co. Ltd. v. CIT (140 ITR 832). 11. Commissioner of Income Tax v. Suren International P. Ltd. (357 ITR 24). 12. Commissioner of Income Tax v. S. Khander Khan Son (300 ITR 157). 13. Remfry and Sagar v. CIT (351 ITR 75). 14. Qualcomm Incorporated v. Assistant Director of Income Tax (W.P. (C) 224/2007). 15. Crompton Greaves Ltd. v. Assistant Commissioner of Income Tax (W.P. (C) 224/2007). 16. L.G. Electronics .....

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DTAA prevails and supersedes the provisions of Section 40(a) (i) of the Act, 1961. He submits that since the impugned notice is founded entirely on the provisions of Section 40(a) (i), the re-assessment proceedings are untenable and misconceived. Counsel for the department however disputes the correctness of the pleas raised by the petitioner assessee. It is pointed out that on 10.06.2010 a survey operation was carried out at the business premises of the Company leading to the impounding of cert .....

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ioner Indian Company. As a necessary corollary the petitioner-assessee had committed default of non-deductions of tax at the time of making payments to the said Korean Company which had a P.E. in India in contravention of provisions contained in Section 195 of the Act, 1961. Because of the said facts, three consequences follow :- (a) Initiation of proceedings against the Korean Co. & its related entities to bring to tax the chargeable income in their hands. (b) Initiation of proceedings agai .....

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sed vide judgement and order dated 13.02.2015. The High Court while dismissing another bunch of writ petitions leading being Civil Misc. Writ Petition (Tax) No. 1366 of 2015, filed by the non-resident Company, by means of an order dated 05.11.2014 recorded that the said non-resident entities were carrying on business in India through a Permanent Establishment. Once P.E. was found to be in existence, attribution of profits liable to tax in India was a necessary consequences and such proceedings h .....

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(b) Dis-allowance of corresponding expenditure under Section 40 (a) (i) of the Act. Counsel for the department submits that from the judgements cited by the petitioner-assessee, it is apparently clear that the question of failure to disclose "fully" & "truly", all material facts in the matter of reopening of the assessment after four years is essentially a question of fact which has to be adjudicated in the background of the material available on record in each case. He s .....

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ough survey operation it had been clearly brought out that the payee Company had a taxable presence in India and its income was chargeable to tax. Counsel for the department clarifies that sufficient reasons have been recorded for arriving at a satisfaction that the Korean Company to whom the payments have been made had a permanent establishment in India and chargeable to tax which information has not been disclosed nor forms part of the records of the assessment proceedings. Consequently, the i .....

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distinguishable in the facts of the case. We have heard learned counsel for the parties and have examined the records. The Apex Court in the case of Indi-Aden Salt Mfg. & Trading Co. (P) Ltd. v. Commissioner of Income Tax reported in [1986] 25 TAXMAN 356 (SC) in paragraph nos. 7 and 8 has held as follows : "7. The assessee's contentions is that the ITO could have found out the position by further probing. That, however, does not exonerate the assessee to make full disclosure truly. .....

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idence which the revenue could have uncovered but did not, then, it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts, the assessing authority might not. In respect of the material failure, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to reopen is attracted. It is sufficie .....

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iples in mind in this particular case whether there has been such non-disclosure of primary facts which has caused escapement of income in the assessment was basically a question of fact." At the very outset we may record that the legal principle which flows from the various judgements cited by the counsel for the parties in the matter of reopening of the assessment beyond a period of four years is that there should be two conditions satisfied simultaneously before issuance of notice of re- .....

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iffer from case to case. Judged in the aforesaid legal background, we find that in Annexure-H of the report of the Chartered Accountant of the petitioner's Company under Section 80 (JJ) (AA) of the Act, 1961 Form 10- (D) (A) enclosed at page 100 onwards to the present petition, details of the amount inadmissible under Section 40 (a) (ia) on which TDS has not been deducted has been given. The same is being reproduced herein below : L.G. Electronics India Private Limited ANNEXURE-H FINANCIAL Y .....

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96,045 TOTAL : 68,994,836 Similarly,in Annexure-I to the same report of the Chartered Accountant the assessee has given the particulars of payment made to persons under Section 40-A (2) (b) of the Act, 1961 during the year ended 31.03.2006. It reads as follows : L.G. Electronics India Private Limited ANNEXURE-I FINANCIAL YEAR 2005-06 STATEMENT SHOWING PARTICULARS OF PAYMENTS MADE TO PERSONS SPECIFIED UNDER SECTION 40 A(2) (b) OF THE INCOME TAX ACT, 1961 DURING THE YEAR ENDED 31st MARCH, 2006. Sl .....

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payments made to L.G. Electronics, Korea, there is no disclosure with regards to non-resident company having P.E. In India as has been found after survey and as affirmed up to the High Court. We are satisfied that because of non-disclosure of the fact qua the L.G. Electronics, Korea having a P.E. In India, there has not been fully and truly complete disclosure of the material facts which could have led the Assessing Officer to examine as to whether tax was payable on the remittance to the non-r .....

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of fully and truly information having not been furnished by the assessee. The Assessing Officer has given valid reasons to believe that income had escaped assessment. We may refer to the judgement of the Apex Court in the case of DIT (International Taxation) Vs. Morgan Stanley and Co. Inc., reported in 292 ITR, 416. Relevant paragraph reads as follows : "The object behind enactment of transfer pricing regulations is to prevent shifting of profits outside India. Under Article 7(2) nor all p .....

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