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2015 (8) TMI 517 - DELHI HIGH COURT

2015 (8) TMI 517 - DELHI HIGH COURT - [2016] 284 CTR 68 - Legality of reassessment proceedings - ITAT held it to be illegal - non deduction of TDS on management service fee paid - Held that:- There was a failure by the AO to comply with the mandatory requirement of disposing of the objections of the Assessee to the reopening in terms of the law explained by the Supreme Court in G.K.N. Driveshafts (India) Ltd. (2002 (11) TMI 7 - SUPREME Court) as well as on account of the failure of the Revenue t .....

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H COURT) and Commissioner of Income Tax v. Smt. Jyoti Devi (2008 (7) TMI 954 - RAJASTHAN HIGH COURT) to answer the issue in favour of the Assessee. - Decided against revenue. - ITA 415/2015 - Dated:- 10-8-2015 - S. Muralidhar And Vibhu Bakhru,JJ. For the Appellant : Ms. Suruchi Aggarwal, Senior Standing counsel with Ms. Lakshmi Gurung, Advocate. For the Respondent : Dr. Rakesh Gupta with Ms. Poonam Ahuja and Mr. Rohit Kumar Gupta, Advocates. ORDER Dr. S. Muralidhar, J. 1. This appeal under Secti .....

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a return of income on 2nd December 2003 showing a loss of ₹ 96,19,890. The return was processed under Section 143 (1) of the Act at the return amount. An order for refund of ₹ 20,16,957 was issued. Subsequently, the Assessing Officer ( AO ) passed an order recording reasons for belief that income has escaped assessment . In this order the AO noted that in the Audit Report under Section 44AB in Form 3CD, the Statutory Auditor had reported that the management service fee to the extent .....

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ot raise any objection to the proposed reassessment after having conveyed the reasons recorded under Section 148 of the Act, there is no need to dispose of the same prior to reassessment. 5. Apparently, the Assessee did raise an objection to the order of the AO reopening the assessment. In the order dated 28th January 2011 allowing the Assessee s appeal, the Commissioner of Income Tax (Appeals) [ CIT (A) ] noted that the Assessee had indeed filed objections to the reopening of the assessment by .....

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dia) Ltd. v. ITO (2003) 259 ITR 19 (SC). The CIT (A), therefore, agreed with the Assessee that since the procedure laid down by the SC in the aforementioned decision was mandatory, the AO had in fact not disposed of the objections by a speaking order. Nevertheless, the CIT (A) held that the said defect does not make the assessment order illegal and hence it cannot be quashed. It is a technical mistake which is curable. 6. The Court is of the considered view that after having correctly understood .....

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he management service fee. The CIT (A) agreed with the submissions of the Assessee and held that in view of the 'Nil' withholding certificate issued by the DDIT Circle 1 (2) of the International Tax Division in favour of the Assessee in terms of the Double Taxation Avoidance Agreement ( DTAA ) between the India and the USA, there was no need for the Assessee to charge tax or withhold tax under Section 195 of the Act. Therefore, on merits the CIT (A) deleted the disallowance of the above .....

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essment, the challenge by the Revenue only to that portion of the order of the ITAT holding that the reopening was not legally sustainable, renders the issue academic. 9. Consequently, for both the aforementioned reasons, viz., that there was a failure by the AO to comply with the mandatory requirement of disposing of the objections of the Assessee to the reopening in terms of the law explained by the Supreme Court in G.K.N. Driveshafts (India) Ltd. (supra) as well as on account of the failure o .....

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mmissioner of Income Tax v. Orient Craft Ltd. (2013) 354 ITR 536 and the decision of the Rajasthan High Court in Commissioner of Income Tax v. Smt. Jyoti Devi (2008) 218 CTR 264 to answer the issue in favour of the Assessee. 11. The case sought to be urged by the Revenue in this appeal is that in terms of the decision of the Supreme Court in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500, an intimation under Section 143 (1) is not an assessment. T .....

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to be factually noticed that the reopening order of the AO only refers to the report of Statutory Auditor under Section 44AB of the Act which report was already enclosed with the return filed by the Assessee. Therefore, factually, there was no new material that the AO came across so as to have reasons to believe that the income had escaped assessment . 13. As far as the legal requirement is concerned, the Court finds that the decision in CIT v. Orient Craft Ltd. (supra) answers the question squa .....

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lable with the AO to form the requisite belief regarding escapement of income, the reopening (under Section 147/148) of the assessment made under Section 143 (1) was bad in law? 15. In CIT v. Orient Craft Ltd. (supra) the Revenue sought to argue, placing reliance on Rajesh Jhaveri Stock Brokers P. Ltd. (supra) that intimation could not be equated with assessment . The Court observed that the decision in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) contrary to what the Revenue would have us belie .....

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d with reference to Section 143(1) vis-a-vis Section 147, the only ingredient is that there should be reason to believe that income chargeable to tax has escaped assessment and it does not matter that there has been no failure or omission on the part of the assessee to disclose full and true particulars at the time of the original assessment. There is nothing in the language of Section 147 to unshackle the Assessing Officer from the need to show reason to believe . The fact that the intimation i .....

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T v. Kelvinator India Ltd. and held as under: Having regard to the judicial interpretation placed upon the expression reason to believe , and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words reason to believe have to be understood in a liberal manner where the finality of an intimation under Section 143(1 .....

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enue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Sec .....

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makes a distinction between the meaning and content of the expression reason to believe in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 17. The Court in CIT v. Orient Craft Ltd. (supra) further comprehensively rejected the argument of the Revenue, w .....

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ssment and we wonder if the revenue would be prepared to concede that position. It is nobody s case that an intimation cannot be subjected to Section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke Section 147 it should play by the rules of that section and cannot bog down. In other words, the expression reason to believe cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made u .....

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ing so, it is further open to the assessee to challenge the reasons recorded under Section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements. 18. It may be noticed at this stage that the decision in Orient Craft Ltd has been followed by this Court in Madhukar Khosla v. Assistant Commissioner of Income Tax (2013) 354 ITR 356. 19. There is no ground urged in the present appeal by the Revenue that the decision in CIT v. Orient Craft Ltd. was erroneo .....

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sha International Ltd. and reiterated the dictum in Orient Craft Ltd. Again in a decision dated 28th January 2015 in Mohan Gupta (HUF) v. Commissioner of Income Tax-XI (2014) 366 ITR 115 (Del) the Court reiterated the decision in Orient Craft Ltd. Thirdly, the Court finds that the questions framed for consideration by the Full Bench in Usha International Ltd. as set out in para 1 of the said judgment did not pertain to reopening of an assessment under Section 143 (1) of the Act. The four questio .....

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