Notice Under Section 148 Cannot Sustain once Arms Length Price Procedure has Been Followed Where the Reassessment is Based only on the Allegation that the Appellant Has PE in India

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers Where the Reassessment is Based only on the Allegation that the Appellant Has PE in India, the Notice Under Section 148 Cannot Sustain once Arm's Length Price Procedure has Been Followed Akhilesh Kumar Sah In Honda Motor Co. Ltd. v. DCIT [ITA Nos. 6018 & 6019/Del/2015, decided on 13-12-2018] ground raised by assessee, pertained to validity of notice under Section 148 of the Act. It was held that notice issued under Section 148 could not be sustained, once arm's length price procedure has been followed. 1. Honda Motor Co. Ltd. Case Recently, in Honda Motor Co. Ltd. v. DCIT [ITA Nos. 6018 & 6019/Del/2015 AYs: 2005-06 & 2006-07, decided on 13-12-2018], appeals had been filed by assessee against the final assessment order dated 31-8-2015 passed by DCIT, International Taxation, Circle Noida, under Section 147 read with 143(3)/144C(5) of the Income Tax Act, 1961 (for short, 'the Act'). 2. Brief facts of the case Assessee-company, incorporated under laws of Japan, was engaged in business of manufacturing of cars, its spare parts and accessories. Assessee had wholly owned subsidiary company in India known as Honda Siel Cars Pvt. Ltd., which had entered into several transactions relating to sale of raw materials, finished goods, capital goods and had received royalty income, fees for technical services, etc. It had been observed by authorities below that transactions had been carried out between two companies ever since its inception. On 24-6-2010 a survey was carried out at premises of Indian subsidiary under Section 133A of the Act. During survey statements of expatriates employees of Indian subsidiary were recorded, on basis of which assessing officer formed a belief that income which was chargeable to tax, had escaped assessment. Assessing officer accordingly issued notice under Section 148 of the Act on 30-3-2011, by recording the reasons to believe that the income had escaped assessment. The main reason for reopening was that the materials collected/impounded during survey operation established business connection of assessee with its Indian subsidiary as per provisions of Section 9(1)(i) of the Act, and existence of permanent establishment of assessee through its Indian subsidiary. Accordingly Assessing Officer (AO)/Dispute Resolution Panel (DRP) was of opinion that income attributable to permanent establishment in India, had escaped assessment. Assessing officer, thus, passed final assessment order after DRP directions and attributed 25% of the global income amounting to Rs. 12,01,49,055 to the PE. Against the order of assessing officer assessee filed appeal before ITAT, New Delhi on following grounds of appeal :-- 1. That on the facts and in the circumstances of the case and in law, the orders passed by the assessing officer/DRP to the extent prejudicial to the interest of the appellant, are bad in law and void ab initio. 2. That the assessing officer/DRP erred in upholding the validity of the reassessment proceedings under Section 147 of the Act when initiation of proceedings did not satisfy necessary requisites contained in Section 147 of the Act and there being no reason to believe that any income chargeable to tax had escaped assessment. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Where the Reassessment is Based only on the Allegation that the Appellant Has PE in India, the Notice Under Section 148 Cannot Sustain once Arm's Length Price Procedure has Been Followed

Akhilesh Kumar Sah

In Honda Motor Co. Ltd. v. DCIT [ITA Nos. 6018 & 6019/Del/2015, decided on 13-12-2018] ground raised by assessee, pertained to validity of notice under Section 148 of the Act. It was held that notice issued under Section 148 could not be sustained, once arm's length price procedure has been followed.

1. Honda Motor Co. Ltd. Case

Recently, in Honda Motor Co. Ltd. v. DCIT [ITA Nos. 6018 & 6019/Del/2015 AYs: 2005-06 & 2006-07, decided on 13-12-2018], appeals had been filed by assessee against the final assessment order dated 31-8-2015 passed by DCIT, International Taxation, Circle Noida, under Section 147 read with 143(3)/144C(5) of the Income Tax Act, 1961 (for short, 'the Act').

2. Brief facts of the case

Assessee-company, incorporated under laws of Japan, was engaged in business of manufacturing of cars, its spare parts and accessories. Assessee had wholly owned subsidiary company in India known as Honda Siel Cars Pvt. Ltd., which had entered into several transactions relating to sale of raw materials, finished goods, capital goods and had received royalty income, fees for technical services, etc. It had been observed by authorities below that transactions had been carried out between two companies ever since its inception.

On 24-6-2010 a survey was carried out at premises of Indian subsidiary under Section 133A of the Act. During survey statements of expatriates employees of Indian subsidiary were recorded, on basis of which assessing officer formed a belief that income which was chargeable to tax, had escaped assessment. Assessing officer accordingly issued notice under Section 148 of the Act on 30-3-2011, by recording the reasons to believe that the income had escaped assessment. The main reason for reopening was that the materials collected/impounded during survey operation established business connection of assessee with its Indian subsidiary as per provisions of Section 9(1)(i) of the Act, and existence of permanent establishment of assessee through its Indian subsidiary. Accordingly Assessing Officer (AO)/Dispute Resolution Panel (DRP) was of opinion that income attributable to permanent establishment in India, had escaped assessment. Assessing officer, thus, passed final assessment order after DRP directions and attributed 25% of the global income amounting to Rs. 12,01,49,055 to the PE.

Against the order of assessing officer assessee filed appeal before ITAT, New Delhi on following grounds of appeal :--

1. That on the facts and in the circumstances of the case and in law, the orders passed by the assessing officer/DRP to the extent prejudicial to the interest of the appellant, are bad in law and void ab initio.

2. That the assessing officer/DRP erred in upholding the validity of the reassessment proceedings under Section 147 of the Act when initiation of proceedings did not satisfy necessary requisites contained in Section 147 of the Act and there being no reason to believe that any income chargeable to tax had escaped assessment.