TMI Blog2012 (12) TMI 1008X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee within reasonable time and prior to the completion of the assessment proceedings, renders this order of assessment invalid and unsustainable in law. - ITA No.549/Bang/2011 - - - Dated:- 10-12-2012 - SHRI JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI N V VASUDEVAN, JUDICIAL MEMBER For the Appellant : Shri K P Kumar, Advocate For the Respondent : Shri Farhat Hussain Quereshi, CIT-II ORDER PER JASON P BOAZ : This appeal by the assessee is directed against the order of the CIT (A)-IV, Bangalore, dated 25.02.2011 for the assessment year 2005-06. 2. The facts of the case, in brief, are as under: 2.1 The assessee is a foreign company incorporated under the laws of Ireland, engaged in the business of sales and marketing of software licenses in India and provision of ancillary services like consultancy, support, training, inspection and installation. The record indicates that the assessee filed its return of income for the assessment year 2005-06 declaring NIL income pursuant to the issue of notice under section 148 of the I T Act, 1961 (hereinafter referred to as the Act ) by the Assessing Officer on 5/4/2007. The assessment was completed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payments received by the appellant from Indian parties was towards the use of process within the meaning of clause (iii) of Explanation 2 to section 9(1)(vi) of the Act, and accordingly, are royalty as defined in section 9(1)(vi) of the Act. 3.5 The DDIT/CIT(A) erred in not holding that, as the appellant did not give the right to Indian customers to reproduce and distribute to the public the copyrighted programme, the payments received by the appellant could not be construed as royalty . 3.6 The DDIT/CIT(A) erred in not holding that, as the payment received by the appellant from Indian customers was not to be measured by reference to the productivity or use of the software, it could not be construed as royalty . 3.7 The DDIT/CIT(A) erred in holding that software is not goods . 3.8 The DDIT/CIT(A) erred in not appreciating the reliance placed by the appellant on the decisions in the following cases:- Motorola Inc. v Deputy Commissioner of Income Tax (2005) 95 ITD 269 (Delhi) (SB); Samsung Electronics Co. Ltd. v ITO (2005) 94 ITD 91 (Bang.); Sonata Information Technology Limited v ACIT (2006) 103 ITD 324 (Bang.); Infrasoft Limited v ADI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the issue of notice under section 148 of the Act on 2/4/2007, which admittedly, it did on 30/4/2007. The return of income was enclosed with a covering letter dated 16/4/2007 (filed on 30/4/2007) addressed to the Assessing Officer wherein the assessee had requested him to provide the reasons for initiating the proceedings under section 148/147 of the Act (at page 10 of the paper book filed by the learned AR on 07/11/2012). It was submitted by the learned AR that the reasons for initiating proceedings under section 147/148 of the Act sought for by the assessee were never made available to it by the Assessing Officer in the course of assessment proceedings which, it is argued, was against the settled position of law on the subject. The learned AR pointed out that the reasons recorded by the Assessing Officer for initiation of proceedings under section 147/148 of the Act were finally made available to the assessee only on 28/1/2010 by the learned CIT(A) in the course of appellate proceedings, as can be seen from the narration in paras 3.2 and 3.3 of the learned CIT(A) s order. The learned AR argued vehemently that on being asked for the reasons recorded for initiation of proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition, the learned DR placed reliance on the decision of the Hon ble Delhi High Court in the case of Nestle India Ltd. v DCIT reported in (2004) 189 CTR (Del.) 70. 4.1.1 We have heard the rival contention, perused and carefully considered the relevant material on record and the judicial decisions cited. Though the arguments on merits were also made, however, at this stage, we will confine ourselves to the issue of the validity of the initiation of proceedings under section 147/148 of the Act and the resultant order of the assessment for the assessment year 2005-06. 4.1.2 As per the records, we find that the then Assessing Officer had recorded in writing the reasons for initiation of proceedings under section 147/148 of the Act. It is also a matter of record that the assessee s letter dated 16/4/2007, for filing the return of income for the assessment year 2005-06 in response to notice under section 148 dt.2/4/2007, contained a specific request to the Assessing Officer to be provided with the reasons for initiating the proceedings under section 147/148 of the Act (copy on page 10 of assessee s paper book filed on 07/11/2012). The assessee s letter dated 16/4/2007 forms a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and were furnished only after completion of the assessment. From this decision it is clear that the reasons recorded for initiation of proceedings under section 147/148 of the Act are required to be furnished by the Assessing Officer to the assessee within a reasonable period in order for the assessee to raise its objections at the preliminary stage of proceedings. If the reasons are not furnished to the assessee during the assessment proceedings, then the subsequent furnishing of the reasons after completion of assessment proceedings would serve no purpose and would amount to the assessee being denied its right to raise objections to the validity of proceedings initiated under section 147/148 of the Act. In the light of the findings of their Lordships in this case, it is clear that the completion of assessment/re-assessment without furnishing the reasons recorded by the Assessing Officer for initiation of proceedings under section 147/148 of the Act is not sustainable in law as it is incumbent on the Assessing Officer to supply them within reasonable time as held by the Hon ble Apex Court in the case of GKN Driveshafts (India) Ltd. v ITO (supra). The subsequent furnishing of re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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