Recording of reasons in support of a decision on a disputed claim by a quasi-judicial authority ensures that the decision is reached according to law and is not the result of caprice, whim or fancy or reached on grounds of policy or expediency. A party to the dispute is ordinarily entitled to know the grounds on which the authority has rejected his claim.
If the order is subject to appeal, the necessity to record reasons is greater, for without recorded reasons the appellate authority has no material on which it may determine whether the facts were properly ascertained, the relevant law was correctly applied and the decision was just.
INCOME TAX APPELLATE TRIBUNAL, DELHI
ITA No. 5019/Del/2010 – Assessment Year: 2007-08
Fraport AG Frankfurt Airport Services Worldwide
Asst. Director of IT
PER RAJPAL YADAV: JUDICIAL MEMBER
The assessee is in appeal before us against the assessment order dated 15.09.2010 passed under sec. 143(3) read with section 144C of the Income tax Act, 1961. Ground Nos. 1 to 3 are general in nature. In ground Nos.4 to 6, assessee has pleaded that it has a permanent establishment and its income has to be assessed as a business income under Article 5 read with Article 7 of the DTAA between India and Germany, instead of assessing the gross total receipt of Rs.40,23,04,478 as fee for technical services, taxable @ 10% on thee gross amounts. In ground No. 7, assessee has pleaded that learned Assessing Officer has erred in rejecting the claim for exemption of Rs.1,46,52,283 which was claimed by the assessee that these receipts are not attributable to PE in India, they are related to the services rendered by Head Office and in terms of para 1(b) of protocol to DTAA between India and Germany they cannot be taxed in India. In ground Nos. 8 and 9, assessee has submitted that learned Assessing Officer has erred in disallowing mobilization expenses amounting to Rs.287,90,000, office and administrative expenses amounting to Rs.192,91,285. According to the assessee, once Assessing Officer has brought to tax the gross receipt @ 10% then there is no justification to disallow any part of expenditure again. In Ground No.10, assessee is impugning charging of interest under sec. 234B of the Income-tax Act, 1961 amounting to Rs.253,41,977.
2. The learned counsel for the assessee at the very outset submitted that in the immediately preceding assessment years, Assessing Officer has accepted the existence of PE as well as the profit attributable to such PE. Hence, income of the assessee has been assessed as a business income as per Articles 5 & 7 of the DTAA. He placed on record copy of the assessment order dated 6.2.2012 passed under sec. 143(3) in assessment year 2008-09. He pointed out that in the light of this order, the ground Nos. 4 to 6 deserve to be allowed and the income of the assessee deserve to be recomputed. He further contended that learned DRP has not considered objections of the assessee and passed a non-speaking order. The learned counsel for the assessee addressed arguments qua ground No.7 to 10 also. But after looking into the order of DRP, we expressed our opinion that all these issues deserve to be set aside to the file of the learned DRP for re-adjudication of the objections raised by the assessee. Learned DR was unable to support the order of the Learned DRP because it does not disclose any facts or reasons as to why the learned DRP did not find any force in the objections of the assessee.
3. With the assistance of learned representative, we have gone through the record carefully. The assessee is a company incorporated in Germany having its registered office at 60547 Frankfurt A.M. Main, Frankfurt, Germany. It has filed its return of income for assessment year 2007-08 declaring nil income. The case of the assessee was selected for scrutiny assessment. It emerges out that the assessee is a resident of Germany and, therefore, for the purpose of Indian Income-tax Act, it is a non-resident assessee. The assessee has set up its project office in India for adjudication of contract entered into between Fraport A.G. and DIAL (Delhi International Airport Ltd. ) relating to modernization, expansion and operation of Indira Gandhi International Airport in India. The assessee has furnished details of income and expenses as shown in the P & L account of the project office established in India which includes payment of salary of personnel deputed by the Head Office, consultancy fee paid to sub-contractor M/s. GMR Energy Ltd. and GMR Holdings Pvt. Ltd., traveling legal and professional expenses. Learned Assessing Officer has prepared a draft assessment order which was served upon the assessee. The assessee has filed objections on the draft assessment order before the learned DRP. These objections along with submissions have been placed on page Nos. 251 to 294 of the paper book.
Learned DRP without looking into any of the objections has passed the following order:
“The assessee filed objections before the DRP vide its application No. 375 on 2.2.2010 for the assessment year 2007-08. The case was fixed for hearing for 28.7.2010. In response to notice Shri C.S. Mathur and Smt. Radhika Mathur appeared and were heard. The main objections pertained to consideration of gross receipt of Rs.40,23,04,478 as taxable income being fee for technical services, rejection for the claim for exemption of Rs.1,46,52,283 in respect of services rendered by head office and also disallowance of mobilization expenses amounting to Rs.2,87,90,000. The assessee has also objected to levy of interest u/s. 234A, 234B and 234C and also initiation of penalty u/s. 271(1)(c).
We considered the arguments forward by the assessee representatives as also written submission vis-à-vis the draft assessment order. We find that all the objections of the assessee have been answered in details by the AO who has given reasonable and cogent replies to the objections. There is one issue which is regarding the technical support fee, provided by head office amounting to Rs.1,46,56,283. The assessee has claimed that this amount had already been included in the total receipt of Rs.40,23,04,478 that being the case the assessee claims that this amounts to double addition. The A.O. is, therefore, directed to verify this vis-à-vis the account of the assessee and allow the relief in case it amounts to double addition. As regards the other issues the DRP does not find any pressing reasons to interfere with the draft order.
The issue of levy of interest and initiation of penalty is premature and hence no interference is warranted at this stage.
Sd/- Sd/- Sd/-
Vijay Sharma) (J.P. Missar) (Goptal Kamal)
CIT-I, New Delhi. CIT-II, New Delhi CIT-XI, New Delhi”
4. On due consideration of the DRP’s order, we find that learned DRP has not looked into any of the objections pointed out by the assessee. In the subsequent assessment year, the Assessing Officer himself accepted the case of the assessee that it is having a PE and its profit attributable to the PE is assessable as a business income as per Article 5 read with Article 7. The observations of the learned Assessing Officer read as under:
“Based on the facts of the case and the decisions as cited above, I am of the considered opinion that since the contractual activities in relation to the project have been carried out in India by technical experts deputed to the project site for long term tenure, also considering that project continued for more than six months i.e. from Ist May 2006 till its completion, it has to be accepted that activities undertaken by the assessee are effectively connected with the PE of the assessee in India.
As such, it held that entire income except the technical planning fees received by PE shall be treated as business income and shall be taxable on net profit basis, in terms of Article 7 of the DTAA between India and Germany”.
5. The order of the learned DRP did not disclose any reason and it is not a speaking order. Hon’ble Supreme Court in the case of Mahabr Prasad Santosh Kumar Vs. State of UP reported in AIR 1970 S.C. 1302 has observed as under:
“Recording of reasons in support of a decision on a disputed claim by a quasi-judicial authority ensures that the decision is reached according to law and is not the result of caprice, whim or fancy or reached on grounds of policy or expediency. A party to the dispute is ordinarily entitled to know the grounds on which the authority has rejected his claim. If the order is subject to appeal, the necessity to record reasons is greater, for without recorded reasons the appellate authority has no material on which it may determine whether the facts were properly ascertained, the relevant law was correctly applied and the decision was just.”
6. Learned DRP did not take cognizance of any of the objections raised by the assessee. Therefore, the impugned order is not sustainable. It deserves to be se aside. Accordingly, we set aside the order of the learned DRP and restore all these issues to the file of the learned DRP for readjudication.
7. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Decision pronounced in the open court on 22.06.2012