AAR- New Delhi : A question cannot be said to be already pending for adjudication before AAR unless notice under section 143(2) is issued before application seeking advance ruling is filed

Authority For Advance Rulings (Income Tax), New Delhi

Ls Cable & System Ltd., Korea Hyderabad Project, In Re

Section : 245R, 143

Justice Dr. Arijit Pasayat, Chairman

T.B.C. Rozara, Member

A.A.R. No. 1321 Of 2011

February 14, 2014

ORDER

1. The applicant LS Cable & System Limited (LSCSL), Korea is a company incorporated under the laws of Korea and has its head office at (12-16F) LS Tower, 1026-6, Hogye-dong, Dongan-gu, Anyang-si, Gyeonggi-do, Korea. The applicant has received offshore supplies contracts from M/s Indu Projects Limited (Indu) for offshore supply order for design, manufacture, supply of 220, 132 kv XLPE insulated UG Cable and accessories against specification No.JB 24 JBIC 1-2 XLPE Cable/2008. The scope of work of LSCSL under the offshore supply contract entails CIF delivery of goods from outside India to Chennai, India. The title to the plant and equipment supply under the off-shore supply contract shall be transferred in favour of Indu outside India.

2. In consideration, for the scope of work under the off-shore supply contract, LSCSL would receive USD 4,50,36,037.40. It was also agreed between LSCSL and Indu that the aforesaid payment would be paid by Indu outside India through irrevocable Letter of Credit (L/C).

3. Presenting the above facts the applicant seeks ruling on the following questions:—

(1) On the facts and circumstances of the case, whether the amounts received/receivable by LSCSL from Indu Project Limited (‘Indu’) for Offshore supply of Equipments & Materials etc. under offshore supply contract No. Indu/UCP/PO/001 dated 12th October 2009 (off Shore supply contract) for design, manufacture, supply of 220, 132 kv XLPE insulated UG Cable and accessories against specification No.JB 24 JBIC 1-2 XLPE cable/2008 [hereinafter referred to as ‘ Hyderabad project’] is liable to tax in India under the provisions of the Income-tax Act, 1961 (‘Act’) and/ or the Agreement for Avoidance of Double Taxation between India and Korea (‘India Korea Tax Treaty’)?

(2) If answer to first question is in the negative, then whether on the facts and circumstances of the case, interest on income-tax refund is liable to tax as per clause 2 of article 12 of India Korea Tax Treaty?

4. The Revenue objected to admission of the application under Section 245R(2) of the Income Tax Act, 1961 (the Act) on the ground that the first relevant assessment year in respect of the said contract is Assessing Year 2011-12 and the return for that assessment year was filed on 29.11.2011, that is before filing the application before the Authority on 30.4.2012 and notice u/s 143(2) has been issued on 24.9.2012. Relying on the ruling of this Authority in the case of SEPCO III Electric Power Construction Corpn., In re [2012] 340 ITR 225/[2011] 202 Taxman 149/13 taxmann.com 158 (AAR – New Delhi) and NetApp B.V., In re [2012] 347 ITR 461/19 taxmann.com 79 (AAR – New Delhi), it was submitted that the question was already pending before Income-tax Authority. It was further submitted that issue of notice under section 143(2) is only procedural and the Assessing Officer can serve the notice on the assessee upto expiry of six months from the end of the financial year in which return is furnished. The notice was issued within the limited time permitted under the Act though it was issued after filling of the application before the authority. The question was, therefore, pending before the Assessing Officer till the time available to him under the proviso to section 143(2) of the Income-tax Act. It is, therefore, argued that the application may be dismissed as non-maintainable.

5. The applicant on the other hand submitted that mere filing of return does not mean that the question is already pending before the Income-tax authority. Relying on the ruling of this Authority in the case of Mitsubishi Corpn. Japan, In re [2013] 40 taxmann.com 335 (AAR – New Delhi) it was submitted that the question can be said to be pending only when notice section 143(2) is issued by the Department.

6. We have considered the rival contentions of the applicant and the Revenue and also considered the facts and rulings/ decisions cited in their submissions.

7. When returns are filed under section 139 or in response to a notice under sub-section (1) section 142, they are processed under section 143(1) of the Act. While processing the return under section 143(1) the total income or loss are computed after making the following adjustments i.e. (i) any arithmetical error in return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return. It is also provided that no intimation under that section shall be sent after the expiry of one year from the end of the financial year in which the return is made. In Explanation to section 143(1) of the Act, the expression “incorrect claim apparent from any information in the return” is also defined. The Revenue does not have any jurisdiction to examine or adjudicate any issue other than those mentioned in Section 143(1) of the Act. There is no scope for examining or adjudicating any debatable issue that requires long drawn arguments. Again only in those cases where the Assessing Officer has reason to believe that any claim of losses, exemption, deduction, allowances or relief made in the return is inadmissible or if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not under-paid the tax in any manner, he can serve notice under section 143(2). Before or without issuing notice under section 143(2) or notice under section 142(1) in cases whether return is not filed, there is no jurisdiction to examine or adjudicate debatable issue claimed or shown in the return of income.

8. The decision in the cases of SEPCO III Electric Power Construction Corpn. (supra) and NetApp B.V. (supra) are based on the premise that by filing a return, an assessee invites adjudication of the question arising out of the returns. It will be seen from analysis of provisions under section 143(2) and 142(1) of the Act, that this was not so. By issue of notice under section 143(2) only, the Assessing Officer assumes jurisdiction to adjudicate all the questions arising out of the return. In the case of Jagtar Singh Purewal v. CIT [1995] 213 ITR 512/78 Taxman 600 (AAR – New Delhi), this Authority considered the issue where though applicant declared amount in question in return, his application for advance ruling was maintainable in as much as no dispute was pending between applicant and department as return had been processed under section 143(1) and refund had been granted and, further, even in return, assessee had raised no dispute regarding assessability of amount but only claimed refund of excess tax paid. It was held that there was no pending dispute between the applicant and the Income-tax Department because the return had been processed under section 143(1) and the refund as prayed for by the applicant had been granted. Secondly, even in the return the assessee raised no dispute regarding the assessability of the amount. On the other hand, he voluntarily showed it and paid tax thereon claiming refund of only the balance. There was, therefore, no ground to reject the application on any of the grounds mentioned in section 245R(2).

9. In the case of Hyosung Corpn. Korea, In re [2013] 357 ITR 123/218 Taxman 36/36 taxmann.com 150 (AAR – New Delhi) this authority has held that mere filing of return does not attract bar on the admission of the application as provided in section 245R(2) of the Act. We are of the view that only when the issues are shown in the return and notice under section 143(2) is issued, the question raised in the application will be considered as pending for adjudication before the Income-tax Authorities. The Revenue’s contention that notice u/s 143(2) was issued within the stipulated time will not affect our stated position because without issuance of the notice, the Assessing Officer does not have jurisdiction to examine and adjudicate the issues raised in the question. Pending proceeding in general and question already pending for adjudication are not the same. For example, when a return of income is filed, it can be said that proceeding is pending till it is processed or deemed to have been processed u/s 143(1) of the Income-tax Act. However, that does not mean the issues raised in the questions filed before this Authority is already pending for adjudication by the Income-tax Authorities. Only when notice u/s143(2) or 142(1) of the Income-tax Act is issued, the Income-tax Authority assumes jurisdiction to adjudicate the issues that may consist of issues raised in the questions before this Authority. The question cannot be said to be already pending for adjudication before the Income-tax authority unless notice u/s 143(2) is issued before the application is filed. In this case, though return of income was filed before filing of the application before this Authority, notice u/s 143(2) was issued after the application was filed and hence the question cannot be said to be already pending before the Income-tax Authority irrespective of the notice u/s 143(2) being issued subsequently within the prescribed time limit under the Act.

The application is admitted u/s 245R(2) of the Act.

ANNEX

AUTHORITY FOR ADVANCE RULINGS (INCOME TAX)

LS Cable & System Ltd., Korea Hyderabad Project, In re

JUSTICE DR. ARIJIT PASAYAT, CHAIRMAN

AND T.B.C. ROZARA, MEMBER

A.A.R. NO. 1321 OF 2011

FEBRUARY 14, 2014

ORDER

1. The applicant LS Cable & System Limited (LSCSL), Korea is a company incorporated under the laws of Korea and has its head office at (12-16F) LS Tower, 1026-6, Hogye-dong, Dongan-gu, Anyang-si, Gyeonggi-do, Korea. The applicant has received offshore supplies contracts from Bharat Heavy Electricals Limited (BHEL) for offshore supply of Equipments & materials under purchase order No.429A345 dated 4.11.2009 (offshore supply contract) called the Ukai Project. The title to the plant and equipment supply under offshore supply contract shall be transferred in favour of BHEL outside India. In consideration for the scope of work under the offshore supply contract, LSCSL would receive INR 2,449,810.72 and INR 126,478.80. It was agreed between the LSCSL and BHEL that the aforesaid amounts would be paid by BHEL outside India through irrevocable Letter of Credit (L/C).

2. Presenting the above facts the applicant seeks ruling on the following questions:—

1. On the facts and circumstances of the case, whether the amounts received/receivable by LSCSL from M/s Bharat Heavy Electricals Limited (BHEL) for offshore supply of Equipments & Materials etc. under purchase order No. 429A345 dated 04th November 2009 (Off Shore Supply Contract) for offshore supply of equipment [hereinafter referred to as ‘Ukai Project] is liable to tax in India under the provisions of the Income-tax Act, 1961 (‘Act’) and/ or the Agreement for Avoidance of Double Taxation between India and Korea (‘India Korea Tax Treaty’)?

2. If answer to first question is in the negative, then whether on the facts and circumstances of the case, interest on income-tax refund is liable to tax as per clause 2 of article 12 of India Korea Tax Treaty?

3. The Revenue objected to admission of the application under section 245R(2) of the Income-tax Act, 1961 (the Act) on the ground that the first relevant assessment year in respect of the said contract is Assessment Year 2011-12 and the return for that assessment year was filed on 29.11.2011, that is before filing the application before the Authority on 30.4.2012 and notice u/s 143(2) has been issued on 24.9.2012. Relying on the ruling of this Authority in the case of SEPCO III Electric Power Construction Corpn. (supra) and NetApp B.V. (supra) it was submitted that the question was already pending before Income-tax Authority. It was further submitted that issue of notice under section 143(2) is only procedural and the Assessing Officer can serve the notice on the assessee upto expiry of six months from the end of the financial year in which return is furnished. The notice was issued within the limited time permitted under the Act though it was issued after filling of the application before the authority. The question was, therefore, pending before the Assessing Officer till the time available to him under the proviso to section 143(2) of the Income-tax Act. It is, therefore, argued that the application may be dismissed as non-maintainable.

4. The applicant on the other hand submitted that mere filing of return does not mean that the question is already pending before the Income-tax authority. Relying on the ruling of this Authority in the case of Mitsubishi Corpn. Japan (supra) it was submitted that the question can be said to be pending only when notice section 143(2) is issued by the Department.

5. We have considered the rival contentions of the applicant and the Revenue and also considered the facts and rulings/decisions cited in their submissions.

6. When returns are filed under section 139 or in response to a notice under sub-section (1) of section 142, they are processed under section 143(1) of the Act. While processing the return under section 143(1) the total income or loss are computed after making the following adjustments i.e. (i) any arithmetical error in return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return. It is also provided that no intimation under that section shall be sent after the expiry of one year from the end of the financial year in which the return is made. In Explanation to section 143(1) of the Act, the expression “incorrect claim apparent from any information in the return” is also defined. The Revenue does not have any jurisdiction to examine or adjudicate any issue other than those mentioned in Section 143(1) of the Act. There is no scope for examining or adjudicating any debatable issue that requires long drawn arguments. Again only in those cases where the Assessing Officer has reason to believe that any claim of losses, exemption, deduction, allowances or relief made in the return is inadmissible or if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not under-paid the tax in any manner, he can serve notice under section 143(2). Before or without issuing notice under section 143(2) or notice under section 142(1) in cases whether return is not filed, there is no jurisdiction to examine or adjudicate debatable issue claimed or shown in the return of income.

7. The decision in the cases of SEPCO III Electric Power Construction Corpn. (supra) and NetApp B.V. (supra) are based on the premise that by filing a return, an assessee invites adjudication of the question arising out of the returns. It will be seen from analysis of provisions under sections 143(2) and 142(1) of the Act, that this was not so. By issue of notice under section 143(2) only, the Assessing Officer assumes jurisdiction to adjudicate all the questions arising out of the return. In the case of Jagtar Singh Purewal (supra) this Authority considered the issue where though applicant declared amount in question in return, his application for advance ruling was maintainable in as much as no dispute was pending between applicant and department as return had been processed under section 143(1) and refund had been granted and, further, even in return, assessee had raised no dispute regarding assessability of amount but only claimed refund of excess tax paid. It was held that there was no pending dispute between the applicant and the Income-tax Department because the return had been processed under section 143(1) and the refund as prayed for by the applicant had been granted. Secondly, even in the return the assessee raised no dispute regarding the assessability of the amount. On the other hand, he voluntarily showed it and paid tax thereon claiming refund of only the balance. There was, therefore, no ground to reject the application on any of the grounds mentioned in section 245R(2).

8. In the case of Hyosung Corpn. Korea (supra) this authority has held that mere filing of return does not attract bar on the admission of the application as provided in section 245R(2) of the Act. We are of the view that only when the issues are shown in the return and notice under section 143(2) is issued, the question raised in the application will be considered as pending for adjudication before the Income-tax Authorities. The Revenue’s contention that notice u/s 143(2) was issued within the stipulated time will not affect our stated position because without issuance of the notice, the Assessing Officer does not have jurisdiction to examine and adjudicate the issues raised in the question. Pending proceeding in general and question already pending for adjudication are not the same. For example, when a return of income is filed, it can be said that proceeding is pending till it is processed or deemed to have been processed u/s 143(1) of the Income-tax Act. However, that does not mean the issues raised in the questions filed before this Authority is already pending for adjudication by the Income-tax Authorities. Only when notice u/s l43(2) or 142(1) of the Income-tax Act is issued, the Income-tax Authority assumes jurisdiction to adjudicate the issues that may consist of issues raised in the questions before this Authority. The question cannot be said to be already pending for adjudication before the Income-tax authority unless notice u/s 143(2) is issued before the application is filed. In this case, though return of income was filed before filing of the application before this Authority, notice u/s 143(2) was issued after the application was filed and hence the question cannot be said to be already pending before the Income-tax Authority irrespective of the notice u/s 143(2) being issued subsequently within the prescribed time limit under the Act.

9. The application is admitted u/s 245R(2) of the Act.

[Citation : 362 ITR 18]