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M/s. M.R.M. Plantations P. Ltd Versus The Deputy Commissioner of Income Tax, Circle II, Madurai and Vica-Versa

2015 (11) TMI 1450 - ITAT CHENNAI

Business of plantations in Malaysia - whether there was a permanent establishment in India? - whether plantation income received from Malaysian cannot be taxed in India? - Held that:- Admittedly, a similar issue was considered by the Supreme Court in the case of PVRM Kulandayan Chettiar (2004 (5) TMI 8 - SUPREME Court) wherein it was held that business income arising out of rubber plantations in Malaysia cannot be taxed in India because of closer economic relations between the assessee and Malay .....

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nt establishment the income from the plantation would be taxable only in Malaysia and not in India. The assessee already filed its return of income and the return filed for all these assessment years which was kept in record. Accordingly, in our opinion the order of the Commissioner of Income Tax (Appeals) is to be confirmed. - Decided in favour of assessee.

Disallowance of expenditure - according to the assessee the said amount was incurred by the Malaysain branch of the company and .....

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enses have no nexus with earning of interest on bank deposits and cannot be allowed as deduction u/s.57 of the Act. Further, the assessee made a plea before us that expenditure at head office at ₹ 15,65,918/- instead of ₹ 43,35,061/-. In our opinion, the Assessing Officer already brought on record the total expenditure at ₹ 43,35,061/- as recorded in earlier para. Being so, the contention of assessee counsel is devoid of merit as it is not based on any evidences. Accordingly, t .....

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to be reopened by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the relevant assessment year, the very initiation of proceedings under section 147 by issuance of notice under section 148 after expiry of four years from the end of relevant assessment year is bad and cannot be sustained. - Decided in favour of assessee - I.T.A.Nos.2772 & 2773/Mds/2014, I.T.A.Nos. 2946, 2947 & 2948/Mds/2014 - Dated:- 9-10-2015 - SHRI N.R.S. .....

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ove assessment years. 2. First we take up ITA No.2947/Mds/2014 for adjudication. The Department has raised the following grounds:- 2. The CIT(A) erred in holding that the AO has not made out a case that there was a permanent establishment in India in regard to carrying on the business of plantations in Malaysia. 3. The CIT(A) failed to note that the reason for assessing the income stated by the AO was The assessee is a company registered in India under the Companies Act and is therefore, residen .....

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ettiar (267 ITR 657) is not applicable to the present case since the control and management of the affairs of the Malaysian Branch of the assessee is situated in India as the Share Holders and Annual General Meeting were conducted in India . 3. The facts of the case are that the assessee filed its return of income for the AY 2006-07 on 21.11.2006 declaring a total income of ₹ 13,77,120/-. The return was processed u/s 143(1)(a) on 15.02.2008. As income chargeable to tax has escaped assessme .....

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rly, on verification of miscellaneous records for the AY 2006-07, it has been found that the assessee is in receipt of only interest income against which they have claimed expenditure of _13,54,443/- which is not allowable. Further, on verification of statement of income, it has been found that the income from Malaysian Branch amounting to _55, 92,897/- is not included in the total income for the purpose of taxation in India. The case law CIT vs.PVRM Kulandayan Chettiar [267 ITR 657] is not appl .....

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unts of the company and profits appropriated. In view of the above, the Assessing Officer had reasons to believe that income to the tune of ₹ 69,47,340/- has escaped assessment. Accordingly assessment was computed interalia taxing the Malaysian plantation. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 4. The Commissioner of Income Tax (Appeals) upheld the assessment. Further, he observed that in view of the judgment of Supreme Court in the cas .....

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ons between the assessee and Malaysia which determines the fiscal domicle of the assessee in terms of Article 4 of the DTAA between India and Malaysia; Being so, the Assessing Officer not justified in treating the assessee having permanent establishment in India. In Article 5(2)(g) the term permanent establishment shall include especially a farm or plantation . 6. In this case, the plantation in Malaysia would be the permanent establishment through which the business is carried on by the assesse .....

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ound raised by the assessee is with regard to disallowance of expenditure at ₹ 43,35,061/- and according to the assessee the said amount was incurred by the Malaysain branch of the company and the expenditure incurred by the head office of the company at Chennai was ₹ 15,65,918/- only which is allowable as income from business/other sources. 8. The facts relating to the issue are that the Assessing Officer observed that in the profit and loss account for the year ended 2006- 07, the .....

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ce : ₹ 34,150/- Income tax paid : ₹ 10,89,929/- Total : ₹ 43,35,061/- The Assessing Officer held that as the interest income from banks is to be taxed as income from other sources, the above expenses cannot be claimed as per Sec.57 of the I.T. Act. The Assessing Officer also held that the assessee has no known business activity in India. Hence, the Assessing Officer disallowed the expenses to the tune of ₹ 43,35,061/-and computed accordingly. Aggrieved, the assessee prefe .....

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e made by the assessee towards salary, remuneration, commission, building maintenance etc, these expenses have no nexus with earning of interest on bank deposits and cannot be allowed as deduction u/s.57 of the Act. Further, the assessee made a plea before us that expenditure at head office at ₹ 15,65,918/- instead of ₹ 43,35,061/-. In our opinion, the Assessing Officer already brought on record the total expenditure at ₹ 43,35,061/- as recorded in earlier para. Being so, the c .....

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are that the Assessing Officer noted that the assessee received ₹ 8,04,623/- on account of exchange rate fluctuation which was not offered as income. The Assessing Officer proceeded to tax ₹ 8,04,623/- as income of the assessee. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 12. The Commissioner of Income Tax (Appeals) observed that the assessee had earned ₹ 8,04,623/- due to exchange rate fluctuation. Gain due to exchange rate on .....

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shown in the profit and loss account for the year ended 31st March, 2006 with the narration Amount adjusted for the purposes of finalizing the balance between the head office and the branch owing to fluctuation in foreign exchange and is a mere notional entry made for the purpose of equalizing the balance between the head office and the Malaysian branch office. The assessee further submitted that the sum of ₹ 8,06,423/- was a notional amount and not a gain real terms, being an accounting e .....

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is dismissed. In the result, the assessee of the appeal in ITA No.2773/Mds/2014 is dismissed. ITA No.2946/Mds/2014, assessment year 2005-2006 (Department appeal) 16. The issue in this appeal is identical which was considered in ITA No.2773/Mds/2014 for the assessment year 2006-2007,. Applying the above ratio, this appeal of the Revenue is also dismissed. ITA No.2772/Mds/2014, assessment year 2005-2006 (assessee appeal): 17. The grounds in this appeal is similar to the grounds in ITA No.2773/Mds/ .....

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oner of Income tax (Appeals) has erred in holding that the proceedings for the reopening of the assessment u/s 147 of the IT Act, 1961 in the assessee s case for the assessment year 2007 08 are; invalid. 2.2 The learned Commissioner (Appeals) has also erred in holding that re-visiting of the same issue which was considered in the original assessment with a different meaning for initiating proceedings u/s 147 amounts to change of opinion. 2.3 The learned Commissioner (Appeals) has failed to note .....

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riginal assessment order dated 22.12.2009, inter alia to an extent of RS.9841036/- being income from Plantation from Malaysia which was not earlier included to the total income of the assessee company in the said original assessment thereby attracting application of provisions of clause © of Explanation (2) to section 147 of the. Income tax Act, 1961 i.e where an assessment has been made but income chargeable to tax has been under assessed . 2.5 The learned Commissioner (Appeals) ought to h .....

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nsidered, Explanation (1) to section 147 of the Act which is reproduced below may kindly be taken note of :- Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing provision i.e proviso 1 of section 147). 2.7 This issue of jurisdiction to reopen assessment u/s 147 by the Assessing Officer is reiterate .....

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ht not. But if there is omission to disclose material facts, the Assessing Officer has jurisdiction to reopen the assessment. This decision was taken in the following cases by the Supreme Court. 1. Indo-Aden Salt Mfg. & Trading Co. Vs CIT(SC) 159 ITR 124 2. Hazi Amir Moh. Mir Ahmed Vs CIT, Amritsar (SC) 110 ITR 630 3. ITO I Ward, Distt. VI Calcutta & others Vs Lakhmani Mewal Das (SC) 103 ITR 437 4. Malegon Electricity Co. P. Ltd vs. CIT , Bombay (SC) 78 ITR 466. 5. Calcutta Discount Co. .....

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l general meeting was conducted in India. As there is omission or failure to make a true and full disclosure by the assessee, the Assessing Officer has a valid reason to believe that income has escaped assessment for the A.Y. 2007-2008 in respect of this case. 2.8 The learned Commissioner (Appeals) ought to have upheld the reopening of assessment u/s.147 for the assessment year 2007-2008. 19. The facts of the case are that the assessee filed its return of income for the AY 2007-08 on 23.110.2007 .....

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laimed against the interest income was disallowed on the ground that the interest income had to be assessed under the head Income from other sources . Since the company did not have any other business income, the expenditure did not qualify for deduction u/s.57. Similarly, on verification of miscellaneous records for the AY 2006-07, it has been found that the assessee is in receipt of only interest income against which they have claimed expenditure of _13,54,443/- which is not allowable. Further .....

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ssessee company has its branch in Malaysia and the control and management of the affairs of the Malaysian Branch is situate in India as the share holders and annual general meeting were conducted in India. c)The income of the Malaysian branch is included in the accounts of the company and profits appropriated. In view of the above, the Assessing Officer had the reasons to believe that income to the tune of ₹ 98,41,036/- has escaped assessment. Accordingly assessment was computed interalia .....

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der of the Tribunal in assessee s own case in ITA No.2326/Mds/2012, dated 05.07.2013 for the assessment year 2004-2005, wherein it was held as under:- 16. So far as income from Malaysian Branch is concerned, the Assessing Officer in the assesemnt order has considered the MD s salary and commission of Malaysian Branch and examined the issue and came to the conclusion that the income of Malaysian Branch is an exempt income and therefore, commission paid to the MD is not allowable and accordingly d .....

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ome a conclusion that there is an escapement of income. Mere change of opinion cannot per se to be reason to reopening . 17. In the present case, the Assessing Officer, having considered entire material and after applying the mind, completed assessment t under section 143(3) of the Act. Thereafter, a notice under section 148 was issued on 24.03.2011 i.e. after four years and reopened the assessment. In our opinion, the Assessing Officer has reopened the assessment is change of opinion, which is .....

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ved as follows:- 16. So far as income from Malaysian Branch is concerned, the Assessing Officer in the assessment order has considered the MD s salary and commission of Malaysian Branch and has examined the issue and came to the conclusion that the income of Malaysian Branch is an exempt income and therefore, commission paid to the MD is not allowable and accordingly disallowed the same. It means, the Assessing Officer has examined the issue and applied his mind. Therefore, reopening of assessme .....

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n the present case, the Assessing Officer, having considered entire material and after applying the mind, completed assessment under section 143(3) of the Act. Thereafter, a notice under section 148 was issued on 24.03.2011 i.e. after four years and reopened the assessment. In our opinion, the Assessing Officer has reopened the assessment is change of opinion, which is not permissible under law. Therefore, the reopening is invalid. 18. Apart from the above, in the present case, the Assessing Off .....

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f that income has escaped assessment, but also default on failure of the assessee to disclose fully and truly all the materials facts. Notice issued under section 148 after expiry of four years cannot be sustained as escapement of income, if any, not on account of any failure on the part of the assessee to disclose material facts fully and truly. The Hon ble Jurisdictional High Court in the case of CIT v. Elgi Finance Ltd. [286 ITR 674] has observed that the assessee company having truly and ful .....

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provisions are available under section 147 in clause (a) and clause (b). This distinction has now been taken away by the Amendment Act. Previously, the line of distinction was a limitation period of four years and the limitation period exceeding four years. The Assessing Officer would reopen a back assessment within a period of four years as long as he had reason to believe in consequence of any information, that income has been under assessed or income has escaped assessment. In the case of li .....

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n the following words: Providing 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 had escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-sect .....

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as a result of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Hon ble Jurisdictional High Court has further observed that in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the Assessing Officer was necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure on the part of the assessee. Failure to do .....

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specific finding by the Assessing Officer in the reasons recorded as extracted from the assessment order that the assessee failed to disclose fully and truly all the particulars required to complete the assessment. Therefore, we find that the notice issued under section 148 is not valid. 21. In similar circumstances, the Hon ble Bombay High Court in the case of Hindustan Lever Ltd. v. ACIT (268 ITR 332) has observed that reasons recorded by the Assessing Officer nowhere stating that there was a .....

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