Reserved Judgment IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Income Tax Appeal No. 64 of 2006 The Commissioner of Income-tax, Dehradun. ...…………. Appellant Versus M/s McDermott International Inc. 252, 3rd Floor, Veer Savarkar Marg, Shivaji Park, Dadar, Mumbai. ...…………. Respondent Mr. Arvind Vashisth, Standing Counsel for the appellant. Mr. V.B.S. Negi, Advocates for the respondent. Coram : Hon’ble Prafulla C. Pant, J. Hon’ble Dharam Veer, J. [Per Hon’ble Prafulla C. Pant, J.] This appeal, preferred under Section 260-A of the Income Tax Act, 1961 (hereinafter referred as the Act) is directed against the judgment and order dated 30.09.2005, passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’, Delhi (hereinafter referred as ITAT), in Income Tax Appeal No. 2173 (M) of 2000, for the assessment year 1995- 96, whereby the appeal of the respondent / assessee was allowed by the Tribunal and the order passed by the Commissioner of Income Tax (hereinafter referred as CIT), under Section 263 of the aforesaid Act, is set aside. 2) Heard learned counsel for the parties and perused the record. 3) Following are the substantial questions of law involved in this appeal: 1. Whether, the ITAT was justified in law in holding that CIT lost its jurisdiction after the application of assessee was accepted under the Kar Vivad Samadhan Scheme (KVSS) 1998? 2. Whether, the ITAT has erred in law in holding that order under Section 263 of Income-tax Act, 1961, could not have been passed ignoring that the settlement under KVSS related only to the tax arrears? 3. Whether, the ITAT has erred in law in holding that the view adopted by Assessing Officer cannot be substituted by CIT in proceedings under Section 263 of the Act, after the settlement under the aforesaid Scheme? 4) Brief facts of the case are that the respondent / assessee is a non- resident company incorporated under laws of Panama. It is engaged in the business of designing, fabrication, construction and installation of platforms, decks, pipelines, jackets and various other similar activities. Its work in question pertains to procurement, fabrication and transportation of structures, pipelines etc. in marine spread to off-shore India and the installation of the structures and pipelines at Bombay High oilfield which is located beyond 12 nautical miles from the continental shelf or the exclusive economic Zone of India. The charges received by the respondent / assessee for such activity are described as “mobilization and demobilization charges”. The assessment year to which this appeal pertains is 1995 –96, in which assessee received the mobilization and demobilization charges under a contract with Oil and Natural Gas Commission (hereinafter referred as ONGC), McDermott ETPM East Inc. and Mazagaon Dock Ltd. The return submitted by the respondent / assessee for the aforesaid assessment year shows that it received US $ 18,95,870 relating to the work done outside India and amount of US $ 84,20,514 with regard to the work done inside India. The return was filed with the relevant invoices and details. The Assessing Officer (hereinafter referred as AO), on scrutiny of the return and the relevant contract, passed order under Section 143(3) of the Income Tax Act on 26.03.1998, wherein he assessed only 50 per cent of the total amount of mobilization / demobilization charges received by the respondent / assessee as an amount received in respect of the work outside India and remaining 50 per cent was assessed as amount received for the work inside India. Accordingly, under Section 44BB of Income Tax Act, the AO assessed the tax at Rs. 3,09,34,992/- i.e. 10 per cent of Rs. 30,93,49,925/-. The assessee was not satisfied with the order passed by the AO and preferred appeal before the Commissioner of Income Tax (Appeals) [hereinafter referred as CIT(A)] challenging the assessment. Meanwhile, it appears that under Finance (No. 2) Act, 1998, Kar Vivad Samadhan Scheme, 1998 (for brevity hereinafter referred as KVSS) was introduced and a declaration was made under Section 89 of said Act by the assessee. The AO accepted the declaration and issued certificate in form 2A, under Section 90 of the Finance (No. 2) Act, 1998. However, on 20th January 1999, CIT issued a notice under Section 263 of the Act to the assessee, proposing to revise the assessment on the ground that AO was not justified in accepting that 50 per cent of the mobilization / demobilization charges cannot be treated towards work carried out outside India, as according to him (CIT) in cases of mobilization / demobilization charges it is difficult to say whether the aforesaid charges can be attributed to the activities of installation outside India, or not. After considering the objections of the assessee against said notice, CIT passed order dated 09.02.2000, under Section 263 of the Act, directing the AO to pass assessment order denovo. Said order was challenged by the respondent / assessee before the ITAT, which allowed the appeal vide impugned order dated 30.09.2005 and set aside the order passed by CIT, under Section 263 of the Act. Hence, this appeal by Revenue. 5) Before further discussion, we think it just and proper to mention here, the relevant provision of law applicable to the case. Sub-Section (3) and sub-Section (4) of Section 90 contained in Chapter IV of the Finance (No. 2) Act, 1998, reads as under: “(3) Every order passed under sub-section (1), determining the sum payable under this Scheme, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceeding under the direct tax enactment or indirect tax enactment or under any other law for the time being in force. (4) Where the declarant has filed an appeal or reference or a reply to the show-cause notice against any order or notice giving rise to the tax arrear before any authority or tribunal or court, then, notwithstanding anything contained in any other provisions of any law for the time being in force, such appeal or reference or reply shall be deemed to have been withdrawn on the day on which the order referred to in sub-section (2) is passed: provided that where the declarant has filed a writ petition or appeal or reference before any High Court or the Supreme Court against any order in respect of the tax arrear, the declarant shall file an application before such High Court or the Supreme Court for withdrawing such writ petition, appeal or reference and after withdrawal of such writ petition, appeal or reference with the leave of the Court, furnish proof of such withdrawal along with the intimation referred to in sub-section (2) .” 6) The aforementioned provision clearly shows that under KVSS of 1998, after the declaration is made to the designated authority under the provisions of Section 89 of the Finance (No. 2) Act, 1998, and settlement order is passed under Section 88 of aforesaid Act, no matter covered under the settlement can be reopened as provided in sub- section (3) of Section 90 of the Finance (No. 2) Act, 1998. Admittedly, in the present case, a declaration is made by the respondent / assessee and a settlement order was passed by the designated authority who issue form No. 2A under the aforesaid Act. The question now is whether, revisional power under section 263 of the Income Tax Act, 1961, could have been exercised by the CIT, or not, in the matter? 7) Mr. Arvind Vashistha, learned Standing Counsel for the Revenue / appellant argued that what is covered under KVSS is the liability relating to arrears of tax and a settlement order passed under KVSS does not bar the authorities from issuing notices in respect of any income which is concealed or not disclosed by the assessee. The revisional power contained under Section 263 of the Act empowers the CIT to call for and examine the record of assessing officer if the same is erroneous in law and prejudicial to the interest of the Revenue. Sub- Section (4) of Section 90 of the Finance (No. 2) Act, 1998, provides that appeals or references made by the declarant shall be deemed to have been withdrawn, and in the present case the appeal filed by the assessee was withdrawn and CIT(A) Dehradun, dismissed the appeal vide order dated 10.01.2000, passed in Appeal No. 198 / DDN / 98-99 against the order passed by the AO, under Section 143(3) of the Act. But the question before us is whether, the revisional authority can exercise its powers on the ground mentioned under Section 263 of the Act, or not? 8) Mr. V.B.S. Negi, learned counsel for the respondent / assessee argued that in view of the provisions contained in sub-Section (3) of Section 90 of the Finance (No. 2) Act, 1998, the matter covered under the Scheme cannot be reopened. 9) We have examined the issue and find that what sub-Section (3) of Section 90 of the Finance (No. 2) Act, 1998 bars is the reopening of the matter covered under the order in any ‘other proceedings’ under the direct tax Act. The revisional jurisdiction of CIT under Section 263 of the Income Tax Act, 1961, cannot be said to be ‘other proceedings’ as the notice issued by CIT to the respondent / assessee pertains to the same proceedings of KVSS questioning whether the matter settled by the AO was covered under said Scheme, or Not? As such, the order passed by CIT under Section 263 of the Act, cannot be said to be without jurisdiction and the view taken by ITAT on that point cannot be sustained. Accordingly, the substantial questions of law relating to the jurisdiction of the CIT to exercise the revisional jurisdiction in the matter of KVSS stands answered in favour of the Revenue. 10) However, the other grounds mentioned in the impugned order passed by ITAT, on which the appeal of the assessee was allowed, setting aside the order passed by the CIT under Section 263 of the Act, does not suffer from any illegality. Mr. Arvind Vashistha, learned Standing Counsel for the Revenue / appellant drew attention of this Court to the principle of law laid down in Killick Nixon Limited Vs. Deputy Commission of Income Tax and others; (2002) 258 I.T.R. 627, and argued that where any income is found concealed and not disclosed in KVSS, the authorities are not prevented from issuing notices and taking steps under the Income Tax Act. After going through the objects of the KVSS, we are satisfied in view of the principle of law laid down in the aforesaid case that where the declaration is found false, the Income tax authorities under the Income Tax Act, 1961, are not prevented from taking the steps under the Act, and what gets finalized under KVSS of 1998 is the amount of tax payable on the declared sum under the Scheme. But, learned counsel for the Revenue / appellant could not show us any material or ground on the basis of which it can be said that the order of the AO, passed under the KVSS is erroneous in law, as such, merely on the ground that order can be prejudicial to the interest of Revenue, power under Section 263 of the Act could not have been exercised by the CIT. What is required under Section 263 of the Act for cancelling an assessment under said Section is that not only the CIT should have reason to believe that the order passed by the AO is prejudicial to the interest of Revenue but also erroneous in law. The same view has been expressed by the Apex Court in Malabar Industrial Company Limited Vs. Commissioner of Income Tax; (2000) 243 I.T.R. 83. Since, as observed by the ITAT also, there appears to be no material on record to issue notice in the present case to cancel the assessment made by AO, to exercise powers under Section 263 of the Act, as such, the order passed by the ITAT, setting aside the order of CIT, under said Section needs no interference. 11) For the reasons as discussed above, this appeal is liable to be dismissed with the observations made in this judgment. Accordingly, the appeal is dismissed with the observations made above. (Dharam Veer, J.) (Prafulla C. Pant, J.) Dt. May 05, 2008. H. Negi