AI Structured Summary
Not yet generated for this judgment
Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
The above captioned appeal is preferred by the assessee against the assessment order dated 17.01.2025, passed by Assistant Commissioner of Income Tax, Circle International Taxation – 1(2)(2), Delhi (hereinafter referred to as ‘ld. AO), passed u/s 147 r.w.s 144C(13) of the Income Tax Act, 1961 (hereinafter ‘the Act’) in pursuance of directions of the ld. Dispute Resolution Panel-1, New Delhi (in short ‘ld. DRP') dated 19.12.2024 under section 144C(5) of the Act pertaining to Assessment Year 2018-19.
Assessee has filed additional grounds of appeal, as under:
1.On the facts and circumstances of the case and in law, the Final Order and DRP Directions are erroneous and bad in law.
2.On the facts and circumstances of the case and in law, the Final Order and DRP Directions are barred by limitation provided u/s 153 of the Act and deserves to be held as void-ab-initio, bad in law and time-barred.
3.On the facts and circumstances of the case and in law, the Ld. AO erred in not providing the Appellant the requisite order of approval obtained from the Learned Commissioner of Income Tax for initiating reassessment proceedings u/s 147 of the Act and thus, the impugned order deserves to be set aside and be held as invalid.
4.On the facts and circumstances of the case and in law, the Ld. AO / Hon. DRP erred in determining the income of Appellant at INR 89,65,506 as against the nil returned income declared by Appellant.
5.On the facts and in the circumstances of the case and in law, the Hon. DRP has grossly erred by failing to independently verify the additional evidences filed by Appellant and by not issuing speaking directions with respect to such. This is a gross violation of section 144C(6) of the Act and the Final Order is bad in law.
6.On the facts and circumstances of the case and in law, the Ld. AO/Hon. DRP erred in holding Expedia Online Travel Services India Private Limited [EXP-IN"] to be a Dependent Agent Permanent Establishment ("DAPE") of the Appellant in India under Article 5(5) of the Double Taxation Avoidance Agreement between India and Switzerland (IN-CH DTAA"). In doing so:
6.1the Ld. AO/Hon. DRP erred on facts while asserting that EXP-IN is a DAPE of the Appellant involved in negotiating and concluding contracts with Indian Lodging Suppliers:
6.2the Ld. AO / Hon. DRP erred in completely disregarding the fact that EXP-IN is rendering merely support services to Appellant; and
6.3the Ld. AO/Hon. DRP erred in concluding that EXP-IN is a DAPE without appreciating that the transactions between Appellant and EXP-IN were carried out on a principal-to-principal basis.
7.On the facts and circumstances of the case and in law, the Ld. AO/Hon. DRP erred in attributing a sum of INR 89,65.506 as business profits to the alleged PE of the Appellant in india, In doing so:
7.1the Ld. AO/ Hon. DRP erred in law by applying Rule 10 of the Income-tax Rules. 1962 ("Rules") for attribution of profits to PE by ignoring the settled principle that the attribution of profits to a PE needs to be undertaken by carrying out a Functional, Asset and Risk ("FAR) analysis of the DAPE; and
7.2the Ld. AO/ Hon. DRP erred in disregarding the fact that the transaction between the Appellant and EXP-IN has been undertaken at arm's length (as confirmed by the transfer pricing report of EXP-IN). Accordingly, the Ld. AO erred in further attributing profits to the Appellant's alleged PE in India without bringing any cogent material on record to establish that the alleged PE had been carrying out any other activity on behalf of the Appellant apart from support services.
8.On the facts and circumstances of the case and in law, Ld. AO grossly erred by incorrectly computing interest u/s 234A and 2348 of the Act.
9.On the facts and circumstances of the case and in law. Ld. AO grossly erred by incorrectly computing fees u/s 234F of the Act.
10.That the Ld. AO erred in proposing to initiate penalty proceedings u/s 270A of the Act.”
Brief facts of the case are that the assessee company is incorporated and governed by the laws of Switzerland on 3rd Dec, 2009. The assessee is engaged in the business of providing "Strategic Lodging Services" to its companies outside lndia which primarily include formulating, managing and guiding global strategies for optimizing lodging supply; developing technology platforms, tools and systems; gathering, analyzing and summarizing data and information related to such lodging opportunities for inclusion on Point of Sale websites (PoS), such websites among others are owned, managed and operated by the other Expedia group entities outside lndia.
In the instant appeal the assessee has raised additional ground under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, with regard to issuance of notice under section 148 having been passed without obtaining approval from any specified authority under section 151 of the Act and has relied on the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT [229 ITR 383(SC)] (Hon. SC) and Jute Corporation of India Ltd. vs. CIT[1990] 53 Taxman 85. The additional ground being legal ground is admitted.
The learned Counsel stated that for the instant year the order under section 148A(d) of the Act dated 29.04.2022 were passed after obtaining approval of CIT (International Taxation), Delhi–1 on 28.04.2022 instead of Pr.CCIT and therefore, it was vehemently argued that there was no valid approval for passing order under section 148A(d) of the Act. The assessee relied on the decision of Delhi High Court in the case of Bhagwan Sahai Sharma vs. DCIT [2025] 174 taxmann.com 916 (Delhi) and Bombay High Court’s decision in the case of Agnello Oswin Dias v. ACIT [2024] 161 taxmann.com 16 (Bombay).
In this regard, it was submitted that the provisions u/s 151 of the Act as substituted by Finance Act 2021 provides that the specified authority for approving u/s 148 Order is as follows:
4.1.Principal Commissioner, Principal Director, Commissioner, or Director where three years or less have elapsed from the end of the relevant assessment year,
4.2.Principal Chief Commissioner or Principal Director General, or Chief Commissioner or Director General when there is no such Principal, where more than three years have elapsed from the end of the relevant assessment year.
It is pertinent to mention that the CIT (IT), Delhi-1 granted purported approval on 28 Apr 2022 (i.e.. more than three years from the end of AY 2018-19 or 31 Mar 2022) which was not permissible as per Section 151 (ii) of the Act.
It is further submitted that for the Subject Year, there was no extension for granting approval for passing 148 Order. Further, the exclusions/extensions of time limit provided u/s 149 of the Act are not applicable on time limits for granting approval u/s 151 of the Act.
The Ld AR brought our attention towards the fact that a specific provision was inserted u/s 151 of the Act by Finance Act 2023 wherein it was provided that the exclusions/extensions of time limit provided u/s 149 of the Act shall also apply on time limits for granting approval u/s 151 of the Act. Such amendment was applicable from 1 Apr 2023 onwards. The relevant extract of memorandum to Finance Bill 2023 is reproduced hereunder:
"At the same time, to give further clarity with regards to the specified authority a proviso is proposed to be inserted in the section 151 to provide that while computing the period of three years for the purposes of determining the specified authority the period which has been excluded or extended as per the provisos in section 149 of the Act from the time limit for issuance of notice under section 148 of the Act shall be taken into account,…...These amendments will take effect from the Ist day of April, 2023."
It is submitted that Section 151 of the Act (before Finance Act 2023 amendment) clearly provides that where more than three years have lapsed from the end of the relevant assessment year, the specified authority should be Principal Chief Commissioner of Principal Director General (or Chief Commissioner or Director General where there is no Principal Chief Commissioner or Principal Director General). In the present case, approval was granted by CIT (IT), Delhi-1 on 28 Apr 2022 (Le., more than three years from the end of the relevant assessment year which is not in accordance with section 151 of the Act). This procedural defect is not merely technical but jurisdictional in nature, rendering the reassessment proceedings null and void. The reassessment proceedings. therefore, stand vitiated in their entirety.
In this regard, reliance is placed by Ld AR on the decision of Delhi High Court in the case of Bhagwan Sahai Sharma vs. DCIT [2025] 174 taxmann.com 916 (Delhi) which is squarely applicable to the facts of the present case. In the said case, it was held that where the Assessing Officer issued a notice u/s 148 to reopen assessment proceedings and such notice was not issued with prior approval of the Principal Chief Commissioner or any other applicable authority specified u/s 151 (ii), the impugned notice was liable to be set aside. The relevant extract of the judgement is reproduced below for your Honor's kind consideration:
"...It is apparent from the said notice that it was not issued with the prior approval of the Principal Chief Commissioner of Income Tax (PCCIT) or any other authority specified under Section 151 (ii) of the Act. Such approval is mandatory for issuance of a notice issued under Section 148 of the Act beyond the period of three years from the end of the relevant assessment year. Dy ...In the recent decision of Communist Party of India (Marxist) v. Income Tax Department [2025] 174 taxmann.com 925 (Delhi)/W.P.(C) 9031/2023 decided on 28.04.2025, this Court had referred to the earlier decisions including the decision rendered by the Bombay High Court in JM Financial & Investments Consultancy Services (P.) Ltd. v. ACIT [W.P. No. 1050 of 2020, dated 04-04-2022] and Siemens Financial Services (P.) Ltd. v. Dy. CIT [2023] 154 taxmann.com 159 (Bombay)/[2023] 457 ITR 647/2023 SCC Online Bom 2822: the Madras High Court in Ramachandran Shivan v. ITO [W.P. No.8570 Of 2023, dated 4-3-2024) and other connected matters, decided on 04.03.2024 and the Orissa High Court in Ambika iron and Steel (P.) Ltd. v. Pr. CIT [2023] 452 ITR 285 (Ori.)/2022 SCC Online Ori 4162 and had noted that the question as to which is the specified authority whose approval is mandatory, would depend on whether the notice under Section 148 of the Act was issued within a period of three years from the end of the relevant assessment year or thereafter. ...In view of the above, the impugned notice is liable to be set aside on this ground alone. The impugned notice is, accordingly, set aside. Thus, proceedings initiated pursuant to the said notice are also set aside."
Reliance in this regard is also placed on the decision of the Bombay High Court in case of Agnello Oswin Dias v. ACIT [2024] 161 taxmann.com 16 (Bombay) wherein the Hon. High Court held that sanctioning authority has to be the Principal Chief Commissioner (of Income Tax) as required u/s 151 (ii) of the Act where the 148 Order has been issued beyond a period of three years. The Hon. High Court further held that the provision u/s 151 of the Act is inserted with effect from 1 Apr 2023 and will not be applicable for AY 2018-19 where the order u/s 148A(d) and notice u/s 151 of the Act had been issued on 22 Apr 2022. The relevant extract of the judgement is reproduced below for your Honor's kind consideration:
"...Petitioner is impugning a notice issued under section 148 of the Income-tax Act, 1961 ("the Act") and the order passed under section 148A(d) of the Act, both dated 22nd April 2022 and the notice dated 29th March2022 issued under section 148A(b) of the Act. One of the grounds raised is that the sanction to pass the order under section 148A(d) of the Act and issuance of notice under section 148 of the Act is invalid inasmuch as the sanction has been admittedly issued by the Principal Commissioner of Income Tax ("PCIT) and not by the Principal Chief Commissioner of Income Tax (PCCIT).
Counsels for Petitioner state this issue is covered by the order dated 6th February 2024 passed by this Courtin the case of Vodafone Idea Ltd. v. Dy. CIT [Writ Petition No. 2768 of 2022, dated 6-2-2024]. Counsel for Respondents agrees.
...The impugned order and the impugned notice both dated 22nd April 2022 state that the Authority that has accorded the sanction is the PCIT, Mumbai-5. The matter pertains to Assessment Year ("AY") 2018-2019 and since the impugned order as well as the notice are issued on 22nd April 2022, both have been issued beyond a period of three years. Therefore, the sanctioning authority has to be the PCCIT as provided under Section 151 (ii) of the Act. The proviso to Section 151 of the Act has been inserted only with effect from Ist April 2023 and, therefore, shall not be applicable to the matter at hand.
... In the circumstances, as held by this Court in Siemens Financial Services (P.) Ltd. v. Dy. CIT [2023] 154 taxmann.com 159/457 ITR 647 (Bom.), the sanction is invalid and consequently, the impugned order and impugned notice both dated 22nd April 2022 under sections 148A(d) and 148 of the Act are hereby quashed and set aside."
Further reliance is placed on the decision of the Bombay High Court in case of Vodafone Idea Limited v. DCIT (WRIT PETITION NO. 2768 OF 2022). The relevant extract of the judgement is reproduced below for your Honor's kind consideration:
"...The impugned order and the impugned notice both dated 7th April 2022 state that the Authority that has accorded the sanction is the PCIT, Mumbai 5. The matter pertains to Assessment Year ("AY") 2018-19 and since the impugned order as well as the notice are issued on 7th April 2022, both have been issued beyond a period of three years. Therefore, the sanctioning authority has to be the PCCIT as provided under Section 151 (ii) of the Act. The proviso to Section 151 has been inserted only with effect from 1st April 2023 and, therefore, shall not be applicable to the matter at hand. ...In this circumstances, as held by this Court in Siemens Financial Services Private Limited Vs. Deputy Commissioner of Income Tax & Ors., 1 the sanction is invalid and consequently. the impugned order and impugned notice both dated 7th April 2022 under section 148A(d) and 148 of the Act are hereby quashed and set aside."
Per contra, Learned DR relied on the order of the Assessing Officer. The ld DR argued that the approval u/s 151(i) has been validly obtained and submitted the chronology of events as under:
| Sr. No. | Date | Notice | Paper book Page No. | Applicable Authority |
|---|---|---|---|---|
| 1. | 27.03.2022 | 148A(b) | 13-14 | The Notice was issued within 3 years from the end of AY 2018-19. |
| 2. | 04.04.2022 | Reply not submitted | 14 | Date of compliance given by the AO. |
| 3. | 21.04.2022 | Reply not submitted | 7 | Reply to SCN u/s 148A(b) furnished by the assessee |
| 4. | 22.04.2022 | Extended date of compliance | 7 | As admitted by the Assessee, the date of compliance for furnishing the reply to 148A(b) notice was extended to 22.04.2022 3rd Proviso to Section 149 applies in this case. The reassessment is within 3 years. |
| 5. | 28.04.2022 | Approval of the Specified authority | From AO | The approval was taken from correct and proper sanctioning authority u/s 151 being CIT (Int. Tax), Delhi-1 as the 148A(b) notice for reassessment was issued within 3 years As per 4th Proviso to Section 149 applies to this case. The sanction was within time. Thus, the AO had followed the procedure established by law under the Act. |
| 6. | 29.04.2022 | 148A(d) | 36-38 | The order u/s 148A(d) was passed by the AO determining that this case was fit for reopening u/s 147/148 |
| 7. | 29.04.2026 | 148 | 41 | Notice u/s 148 was issued to the Assessee which mentions that it is being issued after obtaining the prior approval of the CIT (IT), DELHI-1 accorded on date 28/04/2022 vide Reference No. F.NO. CIT (Intl. Tax.)-1/148/2022-23/110. Hence, the AO has perfectly followed the procedure established by under Income tax Act, 1961. |
The ld DR placed reliance on:
Union of India & Ors. Rajeev Bansal 2024 INSC 754; (Hon'ble Supreme Court)
Ram Balram Buildhome Pvt. Ltd. V/S Income Tax Officer And Anr. W.P.(C) 16232/2024; (Hon'ble Delhi High Court)
BKR Capital Pvt. Ltd Versus Income Tax Officer, Ward 4.1., Delhi, W.P.(C) 19738/2025 (Hon'ble Delhi High Court)
We have heard the rival submissions and perused the material available on record. The substantive jurisdictional issue for our adjudication is whether the order u/s 148A(d) and notice u/s 148 dated 29.04.2022 was issued without obtaining prior approval of correct specified authority u/s 151 of the Act. It is the case of the assessee that CIT(IT) Delhi had granted approval on 28.04.2022 i.e., after 3 years from the end of AY 2018-19 (i.e., after March 31, 2022) which was not permissible u/s 151(ii) of the Act. On the other hand, the case of the Revenue is that the assessee was issued show cause notice under section 148A(b) of the Act on 27.03.2022 for A.Y. 2018-19 i.e., within 3 years from the end of assessment year 2018-19. As the assessee was granted extended date for compliance upto 22.04.2022, the period from 01.04.2022 to 22.04.2022 is to be excluded as per the 3rd proviso to section 149 of the Act. Since the reassessment is within 3 years, the approval taken from CIT is correctly obtained from specified authority u/s 151(i) of the Act.
To appreciate the issue at hand, we deem it appropriate to reproduce the statutory provision of law u/s 149 as substituted by Finance Act 2021 w.e.f. 01.04.2021, existing at the relevant point of time.
[Time limit for notice.
149.(1) No notice under section 148 shall be issued for the relevant assessment year,—
(a)if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b)if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year:
Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021:
Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021:
Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded:
Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly.
Explanation.—For the purposes of clause (b) of this sub-section, "asset" shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account.
(2)The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.]
In the instant case, the AO issued show cause notice u/s 148A(b) on 27.03.2022 which is within 3 years from the end of AY 2018-19. The AO sought for compliance by 04.04.2022 wherein no reply was submitted. The AO allowed extension for the date of compliance upto 22.04.2022 wherein the assessee submitted reply on 21.04.2022. Thus as per 3rd proviso of section 149, the period from 01.04.2022 upto 22.04.2022 shall stand excluded from computing the period of limitation. Thereafter, as per the 4th proviso of section 149, the AO issued order u/s 148A(d) and notice u/s 148 on 29.04.2022 i.e., within the extended period of seven days. In such factual matrix, as the notice was issued within 3 years from the end of relevant assessment year, the AO, therefore, has correctly obtained approval of CIT(IT), Delhi on 28.04.2022 as per section 151(i) of the Act.
In exactly similar facts, in the case of Abhinav Jain V ITO (2026) 185 taxmann.com 461(Delhi), the hon’ble Delhi Court has held that where time to file reply to notice u/s 149(1) is extended, by virtue of 3rd proviso to section 149, the time allowed to assessee to file reply had to be excluded from computing the period of limitation. In that case, the show cause notice u/s 148(b) was issued on 22.03.2022 for AY 2018-19, granting time till 28.03.2022 to file reply. Subsequently, the AO issued two corrigenda on 31.03.2022 and 01.04.2022, extending the time to submit reply till 02.04.2022. The hon’ble Court held that by application of 3rd proviso to section 149(1), the time till 02.04.2022 (11 days) allowed by the AO for furnishing of reply, has to be excluded. Therefore, the order u/s 148A(d) and notice u/s 148 passed on 07.04.2022 shall be within limitation. The hon’ble Court further held as under:
51.In view of our above conclusion, the plea of Mr. Jain that the order under Section 148A(d) and notice under Section 148 have been passed and issued beyond three years, PCCIT/CCIT are competent to take decision to issue notice would not survive as the PCIT and CIT are competent to issue notice within three years, which has been done in this case.
It was similarly held in Ram Balram Buildhome Pvt Ltd V ITO W.P.(C) 16232/2024 dated 30.01.2025 by the hon’ble Delhi Court. Likewise the hon’ble Delhi Court in the case of BKR Capital Pvt. Ltd Versus Income Tax Officer, Ward 4.1., Delhi, W.P.(C) 19738/2025, held that the AO acted within jurisdiction and that the period consumed in granting opportunity under section 148A(b) stands excluded as per 5th proviso of section 149 of the Act of 2024 (corresponding to 4th proviso of section 149 of Act of 2021).
The case of Bhagwan Sahai Sharma vs. DCIT (supra) relied by the assessee is clearly distinguishable in facts. In that case the AY involved is AY 2017-18 and the original notice u/s 148 was issued on 29.06.2021. In accordance with the hon’ble Supreme Court decision in Ashish Agarwal, the AO supplied information to the assessee on 02.06.2022 which was complied with on 25.06.2022. Thereafter the AO issued notice u/s 148 on 29.07.2022. In such facts and context, the hon’ble Court held that since the notice was issued beyond the period of three years from the end of relevant assessment year and the notice u/s 148 issued was without prior approval of PCCIT u/s 151(ii), the same is therefore invalid. Besides, in this decision, the hon’ble court did not discuss the implication of 3rd and 4th proviso of section 149 of the Act.
As far as the decision of the Bombay High Court in case of Agnello Oswin Dias v. ACIT (supra), Siemens Financial Services (P.) Ltd. v. Dy. CIT [2023] 457 ITR 647 (Bom.), and Vodafone Idea Limited v. DCIT (supra) is concerned, we find that the implication of 3rd and 4th proviso of section 149 of the Act, was not brought to the notice of the hon’ble Court. In any case, we are bound by the hon’ble jurisdictional Delhi Court and following its decision rendered in Abhinav Jain V ITO; Ram Balram Buildhome Pvt Ltd V ITO and BKR Capital Pvt. Ltd Versus Income Tax Officer, Ward 4.1., Delhi, discussed above, we hold that the AO has obtained the approval for issuance of notice u/s 148 from CIT(IT)- Delhi who is the correct specified authority u/s 151(i) of the Act. The ground 3 and the additional ground 3.1 is accordingly dismissed.
Coming to the merits of the case, we find that the facts and circumstances of AY 2018-19 is identical to the facts and circumstances of AY 2022-23. In the instant year, the assessee has same business model and has earned Gross revenue (ie., commissions from Indian lodging suppliers) of Rs 237,182,704 and claimed the same to be non-taxable in India as there is no PE in India.
The AO however, as in AY 2022-23, has adopted the same reasoning and logic to hold that the India AE, namely EXP-IN was a DAPE in India. Accordingly, the AO has adopted the global net profit rate (i.e., average of global net profit rate for Dec 2017 and Dec 2018) at 6.3%, working out net profit of Rs 1,49,42,510/-. The Ld AO then adopted attribution rate of 60% to income earned in India and computed the Income attributable to India at Rs. 89,65,506/-.
The ITAT has already held in AY 2022-23, vide its order in ITA 1886/Del/2025 dated 21.09.2026 that the assessee has no DAPE in India. As there is no change in facts and circumstances in the instant year, the decision in AY 2022-23 shall apply mutatis mutandis in the impugned year also. Ground 6 is accordingly allowed.
Ground 7 regarding attribution of income has become academic as we have held that there is no DAPE in India.
Ground 8, 9 regarding interest u/s 234A, 234B and fee u/s 234F is consequential and ground 10 regarding penalty is premature.
In the result, assessee’s appeal in ITA 1943/Del/2025 is partly allowed.