Advocate Akhilesh Kumar Sah
When it is open for the AO to reassess the income on any issue which newly comes to his notice subsequent to the issuance of notice under section 148 of the Income Tax Act, it cannot be said that mere wrong mentioning of the provision of law relating to the other issues in the reasons recorded would vitiate the proceedings.
Recently in, Samsung Electronics Co. Ltd. vs. DCIT (International Taxation) and vice-versa [ITA Nos.- 65 to 70/Del/2013, ITA No.- 315/Del/2016, ITA Nos.- 4705 & 4706/Del/2017 and ITA No.- 982/Del/2016, decided on 22.03.2018, facts amongst others, in brief, were that the Samsung Electronics Co. Ltd (SEC) i.e. assessee was a company established in Republic of Korea on 01.12.1969 and was a tax resident of South Korea and the principal activity of the company is manufacturing and sales of various categories of televisions, home appliances, telecommunication terminals, semi-conductors as well as other state of the art IT products for global markets. It had two wholly owned subsidiaries in India i.e. Samsung India Electronics Private Limited (‘SIEL’) and Samsung India Software Operations Private Limited (now known as Samsung R&D Institute India Bangalore Private Limited) (‘Samsung R&D’). Pursuant to the survey conducted on the premises of SIEL on 24-06-10, Assessing Officer (AO) issued a notice dated 28-03-11 to SEC under section 148 for initiating reassessment proceedings under section 147 of the Act for six AYs from AY 2004-05 to 2009-10. In response to the above notice, SEC filed its tax returns on 09-Sep-11 for all these years declaring income from branch activities for AY’s 2004-08 to 2008-09 which was declared in the original return as well and also royalty/fee for technical services which was not declared in the original return for any year.
The argument of the Authorised Representative was threefold. Firstly, he submitted that the apart from the statements of the employees, no independent material revealing any prima facie ground to believe that there is escapement of income is there. He submitted that the statements alone cannot be relied upon for reopening the assessment. Secondly, he submitted that if after issuing the notice under section 148, AO accepts the contention of the taxpayer and holds that the income for which he had forwarded a reason to believe in respect of escapement of income. From assessment, no roving enquiry in the garb on section 148 is impermissible. Lastly, he submitted that the AO travelled beyond his jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated especially when the reasons for the latter ceased to exist. In support of his contentions he placed reliance on the decisions of the Hon’ble jurisdictional High Court and other high courts.
The Departmental Representative contended that the assessee cannot take any objection to the legality of the reopening proceedings, having not disputed them before the First Appellate Authority. Placing reliance on the decision of the Hon’ble Bombay High Court in Vodafone India services Private Limited vs. UOI (2013) 37 taxmann.com 250 (Bom.) he submitted that the DRP had jurisdiction to entertain the issues relating to the legality or otherwise of the proceedings under section 147 of the Act.
The Learned members of the ITAT, Delhi observed that from the reasons recorded this is not a matter of reopening proposed solely basing on the statements of the expatriate employees. Apart from the statements, the non-disclosure of receipt of royalty as disclosed by the tax returns of the branch indicated that the royalty received from SIEL was not disclosed. AO considered the explanation of the assessee and observed in letter dated 18.11.2011 (page No 45 of the Paper book) that the manufacturing Royalty/FTS received by the assessee from the Indian subsidiary as reflected in the tax returns filed by the SIEL was not reported by the assessee, and it is only in the returns filed in response to the notices issued under section 148 of the Act, such an income was reported. Assessee admitted the fact that they did not declare this income in the original return of income. This fact is borne by the Assessment order dated 18.10.2012 vide paragraph No.7.1 to 7.3, wherein AO recorded that, to the notice issued under section 148 of the Act, the assessee replied that the royalty/FTS received from SIEL was omitted by the assessee due to inadvertence to be declared in the original tax return under section 139(1) of the Act.
Following were the details relating to the income as per original return of income, income as per return filed under section 148, furnished by the assessee:
|Assessment Year||Income as per original return of income (in INR)||Income as per return filed under section 148 (in INR)||Amount of addition made by AO (in INR)||Assessed income (in INR)|
|AY 2005-06||86,592 was offered to tax under “Other Income”||180,897,736||9,894,848||190,792,584|
|AY 2006-07||MAT paid on Book Profits (13,10,35,049) u/s 115JB||229,261,833||10,722,431||239,984,264|
|AY 2007-08||NIL (operations ceased to exist)||354,257,732||44,789,046||399,046,778|
|AY 2008-09||NIL (operations ceased to exist)||564,889,589||57,863,051||622,752,640|
|AY 2009-10||No return filed (Branch was closed)||727,560,470||80,918,894||808,479,364|
The Learned Members observed that a perusal of the figures in the statement furnished in respect of the income as reported in the original return of income and the return furnished under section 148 of the Act leaves no doubt that there is huge difference and in this context it cannot be said that the notice under section 148 of the Act is not supported by any valid reason or reasons proposing to re-open the assessment for the assessment years between 2004-05 and 2009-10. It is only after re-opening the matter and verification of the re-conciliation of royalty and FTS income as declared in the return under section 147 of the Act with the TDS details of SIEL the AO recorded that the Royalty/FTS income as offered to tax in such returns was acceptable. It cannot be said that there is no escapement of income from computation in the original returns of income filed by the assessee for the Assessment Years 2004-05 to 2009-10. It is only because the SIEL affected TDS on such Royalty, FTS income, whose benefit was availed by the assessee in the revised returns that no further tax liability was incurred though income escaping assessment got taxed in fresh proceedings.
The Learned Members of ITAT, Delhi held that non-reporting of the receipt of income on account of royalty was a valid ground for the AO to propose the reopening of the assessment. It cannot be said that there was no escapement of income merely because tax was deducted at source on such income. When it is open under Explanation 3 to section 147 of the Act for the AO to reassess the income on any issue which newly comes to his notice subsequent to the issuance of notice under section 148 of the Act, it cannot be said that mere wrong mentioning of the provision of law relating to the other issues in the reasons recorded would vitiate the proceedings.