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2015 (11) TMI 1450

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..... ion 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 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 - Held that:- Under section 57 only expenditure incurred in connection with earning of income was allowable as deduction. The assessee admitted that the entire income is by way of interest from the bank deposits. It was seen that the expenditure 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 ou .....

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..... control and, management of the affairs of the Malaysian Branch is situated in India as the Share Holders and Annual General Meeting were conducted in India; the income of the Malaysian Branch is included in the accounts of the company and the profits appropriated. 4. The CIT(A) ought to have noted that the Apex Court s decision in the case of CIT vs. P.V.A. Kulandagan Chettiar (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 assessment, proceedings u/s 147 was initiated by issue of notice u/s 148 dt. 22.03.2012. The reasons for initiating proceedings u/s 147 are reproduced below: During the course of assessment proceedings for the AY 2007-08, the expenditure claimed against the interest income was disallowed on the ground that the interest .....

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..... 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 assessee and applying the test of permanent 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. This appeal of the Revenue is dismissed. ITA No.2773/Mds/2014, assessment year 206-2007, (Assessee Appeal) 7. In this appeal, the first ground 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. .....

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..... 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, this ground of the appeal of the assessee is rejected. 10. The next ground raised by the assessee is that the Commissioner of Income Tax (Appeals) erred in upholding the addition of ₹ 8,04,623/- made by the Assessing Officer being exchange rate fluctuation brought to charge by the Assessing Officer without any discussion or assigning reasons in the assessment order. 11. The facts of the issue 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 ex .....

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..... as under:- 1. The order of the learned Commissioner of Income tax (Appeals)-I, Madurai is opposed to law on the facts and in the circumstances of the case. 2.1 The learned Commissioner 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 that the provisions of clauses (b) and (c) of the Explanation (2) to section 147 are clearly applicable in the assessee s case for the assessment year 2007-08 under consideration because the assessee. had deliberately kept away the income of Malaysian Plantation from Indian Taxation laws when the company affairs are controlled in India. 2.4 The learned Commissioner (Appeals) has failed to appreciate that the assessee s total income for the assessment year 2007-08 had been under assessed in the origi .....

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..... ) 103 ITR 437 4. Malegon Electricity Co. P. Ltd vs. CIT , Bombay (SC) 78 ITR 466. 5. Calcutta Discount Co. Ltd vs. ITO, Companies Dist I Calcutta and another (SC) 41 ITR 191. In this case, on verification of statement of income by the Assessing Officer, it has been found that the income from Malaysian Branch amounting to _55,92,897/- was not included in the return of income filed by the assessee. From the annual and director s report, it was observed by the Assessing Officer that the control and management of the affairs of the Malaysian Branch was situated in India as the share holders and the annual 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 declaring a total income of ₹ 10,13,510/-. The return was processed u/s 14 .....

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..... sioner of Income Tax (Appeals) placed reliance on the order 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 disallowed the same. It means the Assessing Officer has examined the issue and applied his mind. Therefore, reopening of assessment again on the same issue is not permissible under law. In the case of Kelvintor of India Ltd (supra) the Hon ble Supreme Court has observed that after 1st April, 1989, the Assessing Officer has power to reopen the assessment under section 147 provided the Assessing Officer has reasons to believe that income has escaped assessment and there is no tangible material to come a conclusion that there is an escapement of income. Mere change of opinion cannot per se to be reason to reopening . 17. In the p .....

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..... a notice under section 148 after four years; therefore, proviso to section 147 is applicable to assessee s case. In this context, certain judicial precedence needs to be considered to decide the issue. In the case of Fenner (India) Ltd. v. DCIT 241 ITR 672, the Hon ble Jurisdictional High Court has observed that in order to reopen an assessment after expiry of four years from the end of the relevant assessment year, the Assessing Officer must summarily record his reasonable belief 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 fully disclosed all material facts necessary for working out the quantum of depreciation, notice under section 148 issued after expiry of four years from the end of relevant assessment year to withdraw the excess dep .....

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..... ecessary 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 so would vitiate the notice and the entire proceedings. Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment. 20. In the present case, the notice under section 148 was issued after four years. There is no 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. .....

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