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M/s Synopsys International Limited Versus The Deputy Director of Income-tax (International Taxation) Circle-11 (1) , Bangalore

2012 (12) TMI 1008 - ITAT BANGALORE

Reopening of assessment - non furnishing of reasons to believe - Held that:- Undisputable facts on record establish beyond doubt that the reasons recorded for initiation of proceedings under section 147/148 of the Act were never furnished to the assessee by the Assessing Officer before completion of the assessment proceedings on 29/12/2008, 33 months after the request was made by the assessee by letter dated 16/4/2007. The subsequent furnishing of the reasons recorded to the assessee by the lear .....

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section 147/148 of the Act to 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 orde .....

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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 by an order under section 143(3) rws 148 of the Act on 29/12/2008 in which the assessee s taxable income was determined at ₹ 7,47,22,046/- on account of the Assessing Officer s finding hat the income from software supplied by the assessee would be chargeable to tax as Royalty. 2.2 Aggrieved by the order of as .....

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essment bad in law and on facts • The learned CIT(A) erred in not holding that the order of the Deputy Director of Income-tax (International Taxation), Circle-1(1), Bangalore ( DDIT or Assessing Officer ) is bad in law and on facts. • The CIT(A) erred in concluding that the reassessment proceedings initiated upon the appellant were valid. The CIT(A) ought to have appreciated that the reassessment proceedings initiated under section 148 of the Act by the DDIT was invalid and without jur .....

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hat the payments received by the appellant do not qualify as royalty under the Double Taxation Avoidance Agreement between India and Ireland ( the DTAA ). 3.3 The DDIT/CIT(A) erred in not holding that whether the payments received by the appellant from Indian parties was in the nature of royalty had most appropriately to be judged under clause (v) of Explanation 2 to section 9(1)(vi) of the Act, which clause did not apply because there was no right in respect of any copyright granted by the appe .....

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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 Comm .....

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catel USA International Marketing Inc (Mum) (2010-TII-123-ITAT-MUM-INTL); • DDIT (International Taxation) v M/s Reliance Industries Ltd. (ITA No.116/Mum/2008) (ITAT Mum); • Hewelett-Packard (India) (P) Ltd. v ITO (2006) 5 SOT 660 (ITAT-Bangalore); • M/s Kansai Nerolac Paints Ltd. v Addl. DIT (2010) ITA No.568/Mum//2009 (ITAT Mum.); and • Addl. Director of Income-tax (Int. Taxation) v M/s Tata Communications Ltd. (2010) ITA No.1473/Mum/2009 (ITAT Mumbai). 3.9 The CIT(A) erred .....

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the Act. 5. Interest under section 234A of the Act The appellant prays that it be granted the consequential relief in respect of levy of interest under section 234A of the Act. 6. Initiation of penalty proceedings The CIT(A) erred in not reaching a conclusion that the initiation of penalty proceedings by the DDIT under section 271(1)(c) was not justified in the case of the appellant. 7. Relief The appellant prays that the DDIT be directed to grant all such relief arising from the preceding grou .....

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outset, submitted that, the assessee had been required to file the return of income for the assessment year 2005-06 pursuant 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 t .....

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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 under section 147/148 of the Act, it was obligatory on the part of the Assessing Officer to communicate the same to the assessee; but which was not done. This, it was submitt .....

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r section 147/148 of the Act during the pendency of assessment proceedings would render the resultant order of assessment bad in law, void ab-initio and liable to be quashed, the assessee also relied on the following decisions:- (i) ACIT v K V Venkataswamy Reddy of the ITAT, Bangalore in ITA Nos.797, 807, 798 & 808/Bang/2009 dated 21/5/2010 - wherein the Tribunal, following the decision of the Hon ble Apex Court in the case of GKN Driveshafts (India) Ltd. v ITO (supra) and of the Hon ble Bom .....

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that the request for copy of reasons recorded for initiation of 147 proceedings vide letter dt.16/4/2007 addressed to the Assessing Officer was for filing of the return of income for the assessment year 2005-06. No separate application was made by the assessee to the Assessing Officer, for obtaining the reasons. It was further submitted that as the reasons were provided to the assessee by the learned CIT(A) that would suffice as compliance with the requirements of law and procedure as laid down .....

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e 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 .....

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of paras 3.2 and 3.3 of the learned CIT(A) s order that reasons recorded by the Assessing Officer for initiation of proceedings under section 147/148 of the Act were never provided to the assessee by the Assessing Officer during the pendency of assessment proceedings which culminated in the order of assessment on 29/12/2008, almost one year and eight months after the request for the same was made by the assessee on 16/4/2007. In para 3.2 of his order, the learned CIT(A) states that the reasons r .....

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ITR 19) (2003) that on being requested by the assessee, the Assessing Officer is bound to furnish the reasons recorded for initiation of proceedings under section 147 of the Act within a reasonable period of time so that the assessee could file its objections thereto and the Assessing Officer was to dispose off the same by passing a speaking order thereon. Even as per the rules of natural justice, the assessee is entitled to know the reasons on the basis of which the Assessing Officer has forme .....

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n CIT v Videsh Sanchar Nigam Ltd. (ITA No.4235 of 2010 dt.20/7/2011), the Bombay High Court has held that re-assessment proceedings were invalid for the reason that the reasons recorded for reopening of the assessment were not furnished despite requests by the assessee till the completion of the assessment 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 .....

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on 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 .....

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