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Judgment
PER RENU JAUHRI :
The assessee Bechtel Power Corporation has filed the present appeal against the assessment order dated 29.01.2025 passed by the Assessing Officer [for short, AO] u/s 147 r.w.s 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for A.Y. 2018-19 in consonance with the order dated 09.12.2024passed by the Dispute Resolution Panel (DRP)- u/s 144C(5) of the Act.
The assessee has raised following grounds of appeal:
“1.That on the facts and in the circumstances of the case and in law, the order passed by the Ld. AO under Section 147 read with Section 144C(13) of the Act is wrong and bad in law and should be quashed and the order passed by the Hon'ble Dispute Resolution Panel - 1, Delhi ('DRP') and the directions given therein are erroneous.
2.That on the facts and circumstances of the case and in law, the Appellant submits that approval from specified authorities for issuing notice under 148A(b) of the Act was not obtained as per the provisions of the Finance Act, 2021.
3.That on the facts and circumstance of the case and in law, the proceedings are bad in law and devoid of jurisdiction, as the approval obtained u/s 151(i) of the Act is not of the correct authority.
4.That on the facts and circumstances of the case and in law, Ld. AO has erred in assuming jurisdiction u/s 148A of the Act solely on the premise that no return of income was by filed by the Appellant, which is misplaced as per facts of the case as the Appellant had duly filed its return of income.
5.That on the facts and circumstances of the case and in law, the Ld. AO has erred in passing the order in a contradictory manner.
6.That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the Appellant has a Business Connection and Permanent Establishment in India in accordance with Article 5 of the Double Taxation Avoidance Agreement between India and the USA ('India-USA DTAA').
7.Without prejudice to Ground No. 6, on the facts and circumstances of the case and in law, the Ld. AO has erred in making an ad-hoc attribution of 100% of the profits to the alleged Permanent Establishment of the Appellant in India.
8.Without prejudice to Ground No. 6, on the facts and circumstances of the case and in law, the Ld. AO has erred in not allowing expenses incurred by the alleged Permanent Establishment of the Appellant in relation to earning of the income from Reliance Industries Limited ('RIL').
9.That on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing and the DRP has grossly erred in confirming that the service receipts of the Appellant from RIL are taxable in India as Fee for Included Services (FIS') under Article 12 of the India-USA DTAA.
10.That on the facts and circumstances of the case and in law, the DRP has erred in not appreciating that the protective and substantive additions of an income can be made only when the identity of the real owner of the income is unclear and have no applicability in the present case where both substantive and protective additions have been made on the same person.
11.That on the facts and circumstances of the case and in law, the Ld. AO has erred in computing the total income of the appellant in computation sheet attached to the assessment order passed u/s 143(3) of the Act, where in the computation sheet, the addition made to the returned income of the Appellant has been considered as four times the amount of actual addition made in the assessment order passed.
12.That on the facts and circumstances of the case and in law, the Ld. AO has erred in computing the total liability of the Appellant in computation sheet attached to the assessment order passed u/s 143(3) of the Act by application of incorrect tax rates.
13.That on the facts and the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under Section 270A of the Act.
14.That on the facts and the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under Section 271B of the Act.
15.The above grounds of appeal are independent and without prejudice to one another.
16.The Appellant prays for leave to add, alter, amend and/or modify any of the grounds of appeal at or before the hearing of the appeal.”
At the outset, Ld. AR has submitted that Ground Nos. 2, 3, & 4 relating to reopening of the case may be taken up first. In this regard, Ld. AR filed written submissions in support of his arguments which are reproduced below:
“ 1. Bechtel Power Corporation ('Assessee') is a company incorporated in United States of America ('USA'). The assessee's operations in India are limited to providing engineering and procurement support services.
2.The assessee filed its return of income ('ROI') on 19.10.2018, declaring income of Rs. 1,32,36,218/-. The Assessee claimed this income as exempt and claimed refund of Rs. 14,32,165/-. The ROI was processed under Section 143(1) of the Income Tax Act, 1961 (Act') on 13.06.2019. Scrutiny assessment was not initiated.
3.Thereafter, the Assessee's case was picked up by the Risk management Strategy of Insight for non-filing of ROI for the subject year. Notice under Section 148A(b) of the Act was issued on 26.03.2022 on the ground that since the Assessee has not filed its ROI, source of income of Rs. 1,32,36,218 was unexplained.
4.The Assessee duly furnished its response and submitted that it has already filed its ROI for the subject year on 19.10.2018.
5.Thereafter, order under Section 148A(d) of the Act was passed on 11.04.2022 wherein the Ld. AO held that this was a fit case for issuance of notice under Section 148 since the Assessee has failed to substantiate how the income has been claimed as exempt. The Ld. AO has recorded that the order is passed with due approval of competent authority under Section 149(1)(b) and Section 151(i) of the Act. However, a copy of the approval has not been provided to the Assessee, even after multiple follow-ups.
8.It is an established position of law that the order under section 148A(d) ought not contain any new allegations which do not find their mention in notice issued under section 148A(d) of the Act, since the same is contrary to the scheme and intent of Section 148A of the Act.
12.Presently, vide notice under Section 148A(b) , the Ld. AO has sought to initiate reassessment proceedings on the ground that Assessee has not filed its ROI for A.Y. 2018-19 and, therefore, the source of the funds and tax liability of the transaction amounting to Rs. 1,32,36,218/- could not be ascertained.
13.In response, the Assessee duly submitted that it filed its ROI on 19.10.2018 wherein this amount has been duly disclosed and claimed as exempt under the India-USA DTAA.
14.Thereafter, in order passed under Section 148A(d) of the Act, dated 11.04.2022, Ld. AO accepted that the Assessee has infact filed its ROI on 19.10.2018. However, despite any mention in notice issued under Section 148A(b) of the Act, the Ld. AO changed its basis for reopening the assessment in the order passed u/s 148A(d) of the Act and noted that the Assessee has failed to explain how the receipts were exempt.
15.Hence, the information available with the Ld. AO which formed the basis for issuance of notice u/s 148A(b) of the Act was admittedly incorrect. The limited basis of the Ld. AO for reopening the assessment was that the return had not been filed and hence, nature of transaction is not ascertainable. There was no information on record that any income, which is chargeable to tax, has escaped assessment at the time of issuance of notice under Section 148A(b) of the Act. Had the Ld. AO examined the return filed by the Assessee, not only the said amount of Rs. 1,32,36,218 was clearly disclosed in the ROI, the nature of the same was also clearly mentioned and the Assessee had duly claimed the same as exempt under the India-USA DTAA.
16.Therefore, the information available with the Ld. AO admittedly did not suggest that income chargeable to tax in India has escaped assessment. Accordingly, on knowing that the Assessee has filed its ROI for year under consideration, Ld. AO erroneously changed its basis for reopening from "tax liability could not be ascertained and transaction remains unexplained" in notice under Section 148A(b) of the Act to "assessee could not substantiate how the transaction has been claimed as exempt" in the order under Section 148A(d) of the Act.
17.Hence, the reassessment proceedings have been initiated in contravention of the statutory scheme of Section 148A and principles of natural justice. Hence, it is liable to be quashed.”
Further, Ld. AR has placed reliance on several judicial pronouncements on the issues including the following decisions of the Hon’ble Jurisdictional High Court:
Banyan Real Estate Fund Mauritius v. ACIT [2024] 165 taxmann.com 210 (Delhi)-
“……….28. A decision to reopen or reassess cannot be based or sought to be justified either on additional reasons or those which may be supplied subsequently while disposing of objections preferred by an assessee. The statutory scheme of reassessment neither sanctions vacillation not can a decision to trigger reassessment be sustained based upon an attempted supplementation aimed at bolstering or buttressing the original opinion……”
Ernst and Young Emeia Services Limited v. ACIT, TS-330-HC-2025(DEL) wherein it was held that if the reasons recorded in order under section 148A(d) of the Act, are absent in the notice issued under section 148A(b) of the Act, then the proceedings initiated are bad in law and liable to be quashed.
On the other hand, Ld. DR has relied on the orders of the Ld. AO.
We have heard the rival submissions and perused the material placed before us. Admittedly, the notice u/s 148A(b) issued on 26.03.2022 was based on the assumption that no return of income had been filed by the assessee. Copy of the notice produced before us by the Ld. AR has also been perused in this regard. In response, the assessee had intimated the Ld. AO that return of Income for A.Y. 2018-19 was filed on 09.10.2018 in which the source of income of Rs. 1,32,36,218/- was duly declared. However, Ld. AO while passing the order u/s 148A(d), even while admitting that the assessee had furnished its return, held as under:
“ Further, although the assessee has filed its return of income. However, assessee could not substantiate how ibid transaction has been claimed as exempt. And it could not be examined on the basis of material available on record whether the same transaction is exempt or not. Further it was observed that the same transaction were taxed as FTS during assessment proceedings for A.Y. 2016-17 & 2017-18. In view of the development, it is established that the assessee has not offered adequate explanation with respect to the income that has escaped assessment . Consequently, the assessee’s objection to reopening of assessment proceedings are hereby dismissed and the notice u/s 148 of the Act is issued.”
Thus, we note that even though notice u/s 148A(b) was issued on the ground of non-filing of return, different grounds for reopening have been stated by the Ld. AO while passing the order u/s 148A(d) of the Act.
In view of above facts and circumstances and in the light of decisions of the Hon’ble Delhi High Court, cited hereinabove, we hold that the notice u/s 148 is bad in law and hence the same is hereby quashed. As the proceedings have been quashed, rest of the grounds are rendered academic in nature and hence not being adjudicated upon.
In the result, the appeal of the assessee is allowed.