HIGH COURT OF DELHI
Mitsubishi Corporation
V/s.
Deputy Director of Income-tax
W.P. (C) NO. 13983 OF 2009
MAY 1, 2012
JUDGMENT
Sanjiv Khanna, J
Mitsubishi Corporation has filed the present writ petition impugning initiation of re-assessment proceedings under Section 147 of the Income Tax Act, 1961 (‘Act’, for short) vide notice issued under Section 148 of the Act dated 31.3.2009. The petitioner thereafter had in terms of the decision of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 filed objections to the initiation of re-assessment proceedings which stand dismissed by the impugned order dated 26.11.2009.
2. The assessment year in question is 2002-03 and it is undisputed that the original assessment proceedings were concluded vide assessment order dated 24.3.2006 passed under Section 143(3) of the Act.
3. Ld. counsel for the petitioner before us has raised 6 contentions namely,
(1) It is the case of change of opinion as the Assessing Officer in the original assessment proceedings had examined and gone into the question of the income earned by the project office from sales made to Delhi Metro Rail Corporation (hereinafter referred to as DMRC).
(2) That the assessee had made full and true disclosure of material facts and the bar stipulated in the proviso to Section 147 of the Act applies.
(3) The reasons recorded do not specifically record and mention that the assessee had failed to disclose full and true material particulars.
(4) There is no escapement of income.
(5) Approval granted under Section 151 of Act by the Director of Income Tax (International Taxation) is back dated and was not taken on or before 31st March, 2009.
(6) The original assessment order under Section 143(3) of the Act is an agreed assessment and accordingly, the petitioner was taxed at GP rate of 2.75% on the total turnover as mentioned in Annexure P2 of the writ petition.
4. As far as the contention No.5 is concerned, we notice that a Division Bench of this Court vide orders dated 25.11.2010, 28.1.2011 and by our order dated 9.8.2011, we had directed that affidavits of the concerned officer who had put the file for approval and the authority who had granted the approval should be filed. The said affidavit has not been filed by the approving authority i.e. Director of Income Tax (International Taxation). However, two affidavits of the then assessing officer, Neehar Ranjan Pandey have been filed. In the second affidavit filed on 21.10.2011, he has stated that the approval/satisfaction was granted by the Director of Income Tax (International Taxation) on 31.3.2009. Annexure 2 to the said affidavit has not been filed with the affidavit but has been produced before us during the course of hearing. The said original shows that the Director of Income Tax (International Taxation) had granted sanction/approval on 31.3.2009. In view of the above, the 5th contention of the petitioner does not appear to be correct and has to be rejected. We may only record here that we are not impressed by the contentions No.4 and 6 raised by the petitioner with regard to the escapement of income and an agreed assessment cannot be reopened. Re-assessment can be initiated if the conditions mentioned in Section 147 are satisfied, even if the first/original assessment was on agreed assessment. Regarding under assessment or escapement of tax, a wrong or incorrect assessment can result in the same. At the stage of issue of notice only a prima facie or tentative view is to be taken.
5. Having heard counsel for the parties, we are of the view that the petitioner is entitled to succeed in view of the contention Nos.1 and 2. Contention No.3 as we perceive is a part of contention No.2. Our reasons are elucidated in paragraphs below.
6. The reasons recorded for reopening go into about 49 typed pages. However, except for first two pages and the last page, the said reasons are mere reproduction of the assessment order passed by the said Assessing Officer for the assessment year 2005-06. The first two pages portion of the reasons which are germane and discuss the factual matrix pertaining to the assessment year 2002-03 and the last portion of the same reasons read as under :
“The assessee is operating in India through liaison office and also through project office. The assessee alongwith Rotem Co., a company incorporated in South Korea and Mitsui Electrical Corporation, a company incorporated in Japan , formed a consortium. The said consortium has been awarded a contract by Delhi Metro Rail Corporation (DMRC) for design, manufacture, supply, testing and commissioning of passengers. It was agreed between parties that the obligations and rights under the Contract are separate for each party and no party will be responsible for the acts of other parties. The consideration for the entire work to be carried out by the consortium is a fixed lump sum price of INR 3,110,439,836 and USD 260,997,269 which is apportioned amongst various cost centres (A to J), and further apportioned amongst various milestones.
Under the terms of conditions of the said contract, it has been agreed that 15 trains will be supplied to DMRC from overseas entirely manufactured outside of India and remaining 45 trains will be supplied/assembled/manufactured in India in a phased manner as regard upon between the parties. The assessee was appointed as the leader of the consortium and has set up a Project Office (PO) in India for executing the said contract.
The Liaison Office (LO) of the assessee is engaged in various activities, details of which has been furnished by the assessee in the course of the assessment proceedings.
The assessee filed original return of income showing a loss of Rs. 21,345,145/-. In notes to the accounts the assessee has stated that “no income has accrued to the Project Office during the period ended March 31, 2002 from the contract mentioned in paragraph 3 above”. This return was subsequently revised on 31.03.2004 showing a income of Rs. 19,21,063/- on account of ‘prior period income’. During the course of the assessment proceedings, the assessee furnished details of the turnover of the LO in India at Rs. 34989 Million. The assessee, during the assessment proceedings agreed to be taxed at the G.P. rate of 2.75% of total turnover of the L.O. This turnover, however, did not include the sales to DMRC effected through the Project Office amounting to Rs.187,14,40,158/-. This amount represents ‘milestones payments’ received overseas in foreign currency. The said amount was also not offered for tax in the income of P.O.
During the course of assessment proceedings, for A.Y 2005-06 it was found that the assessee has shown total ‘milestones payments’ of Rs. 2,348,868,060/- received from DMRC under the contract RS1 which is relevant for A.Y 2002-03 also. The assessee included these sales in the turnover of the LO and applied the GP rate of 2.75% for arriving at the gross income, 50% of such income was attributed to the LO in India . The taxable income was computed after claiming of deduction u/s 44C of the Act.
In the course of the assessment proceedings, it was found that the sales made to DMRC are not attributable to the LO rather they are attributable to the Project Office opened in India for the purpose of executing the project of DMRC. In the assessment order for the A.Y.2005-06, the issue was discussed in detail, the relevant extracts of which are reproduced below :
