The interim order has been passed on the basis of a prima facie case that the impugned transfer order has not been made by a proper Collegium in accordance with the guidelines laid down in Ajay Gandhi‘s case and also on the ground of alleged mala fides against the present officiating president of the ITAT. A new point has now been raised by the transferred Member that the ACC (Cabinet Committee of Appointment) has not yet accorded approval on the proposed appointment of Shri Karwa as officiating President of the ITAT on the ground that by such appointment there is a supersession of three persons and as there is no difference between an appointment in a substantive capacity and an officiating capacity, the appointment requires to be considered first by the Selection Committee. This approval may or may not come in due course of time and then only the exact status of the competent authority i.e. the President, ITAT, would be ascertained. For the present, prima facie, this point is in favour of the applicant. As regards the point of proper Collegium, the requirement in Ajay Gandhi is that the President should consult two senior Vice Presidents and not the two Vice Presidents available. It has been alleged that though the two Senior Vice Presidents were available for the Collegium, they were ignored in an arbitrary manner and in utter defiance of the law. Prima facie there appears to be some substance in the submission. A prima facie case has also been made out as regards the allegation of malafides. Consequently, there is no substantial and sufficient ground for vacating the interim order dated 19.11.2012

Three possible circumstances emerge on the date of initiation of search u/s 132(1): (a) proceedings are pending; (b) proceedings are not pending but some incriminating material is found in the course of search, indicating undisclosed income and/or assets and (c) proceedings are not pending and no incriminating material has been found. Circumstance (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the AO gets a free hand to make the assessment. Circumstance (b) has been answered in Anil Bhatia to hold that while there is no question of any abatement since no proceedings are pending, the AO is entitled to reopen the assessment (without having to comply with the strict conditions of s. 147, 148 and 151) and bring the undisclosed income to tax. Also, in All Cargo Global Logistics Ltd 137 ITD 287 (Mum)(SB) it was held that in the case of a non-abated assessment, an assessment u/s 153A has to be made on the basis of incriminating material. Circumstance (c) has been kept open and left unanswered. Circumstance (c) has to be answered to say that even where there is/are no pending proceedings and no incriminating material has to be found, the AO is still required to pass an order u/s 153A though the assessed income will have to be the same as the originally assessed income as there was no incriminating material. Accordingly, the assessee’s argument that when there is no incriminating material or assets, then there is no jurisdiction to proceed u/s 153A is not acceptable. S. 153A contains a non-obstante clause and is triggered automatically whenever a search is undertaken. The fact that no incriminating material was found has no bearing on the applicability of s. 153A

The first question is whether the OEMs have carried on business in India and used the assessee’s patents for that purpose. The mere fact that the products manufactured by the OEMs outside India were sold to parties in India does not mean that the OEM’s carried on business in India. For a business to be carried out in India there should be some activity carried out in India. A mere purchase and sale with an Indian party is not sufficient. The fact that the OEMs customized the handsets so as lock them to a specific operator and included Hindi and regional languages, etc was irrelevant as such customization was not connected with the assessee’s patents. There was no customization of the hand set qua the CDMA technology. Further, even if the OEM customized the handsets to Indian specifications that did not mean that the OEM was “carrying on business in India”. The assessee’s role ended when it licensed its patents to the OEMs and the OEMs role ended when they sold the handset to the Indian customer. The sale was of a chattel as a chattel and though the product is a combination of hardware and technology, the revenue’s attempt to break down the sale into various components is not supported by the terms of the agreement and the facts and it cannot be said that every item other than software was sold and that the embedded software has been separately licensed. There is also no evidence on record to show that title to the handsets passed in India or that certain further activity was done by the OEMs in India after the sale. On the other hand, title to the equipment passed to the Indian customer on high seas and the profits made by the OEMs would not be chargeable to tax in India. The taxability of the assessee directly depends on the taxability of the OEMs and if the OEM is not taxable, the assessee cannot be made taxable (Ericsson AB 246 CTR 433 (Del), Skoda Export, Nokia Net Works followed). Even otherwise, the mere passing of title in imported goods in India does not mean that the OEM is carrying on business in India. It is “business with India” and not “business in India”

L.G. Electronics Inc, a Korean company, set up a wholly owned subsidiary in India (the assessee) to which it provided technical assistance. The assessee agreed to pay royalty at the rate of 1% as consideration for the use of technical know how etc. The Korean company also permitted the assessee to use its brand name and trade marks to products manufactured in India on a royalty-free basis. The AO, TPO & DRP held that as the Advertising, Marketing and Promotion (“AMP expenses”) expenses incurred by the assessee were 3.85% of its sales and such percentage was higher than the expenses incurred by comparable companies (Videocon & Whirlpool), the assessee was promoting the LG brand owned by its foreign AE and hence should have been adequately compensated by the foreign AE. Applying the Bright Line Test, it was held that the expenses up to 1.39% of the sales should be considered as having been incurred for the assessee‘s own business and the remaining part which is in excess of such percentage on brand promotion of the foreign AE. The excess, after adding a markup of 13%, was computed at Rs. 182 crores. On appeal by the assessee, the Special Bench had to consider the following issues: (i) whether the TPO had jurisdiction to process an international transaction in the absence of any reference made to him by the AO? (ii) whether in the absence of any verbal or written agreement between the assessee and the AE for promoting the brand, there can be said to be a “transaction“? (iii) whether a distinction can be made between the “economic ownership” and “legal ownership” of a brand and the expenses for the former cannot be treated as being for the benefit of the owner? (iv) whether such a “transaction“, if any, can be treated as an “international transaction“? (v) whether the “Bright Line Test” which is a part of U. S. legislation can be applied for making the transfer pricing adjustment? (vi) whether as the entire AMP expenses were deductible u/s 37(1) despite benefit to the brand owner, a transfer pricing adjustment so as to disallow the said expenditure could be made? (vii) what are the factors to be considered while choosing the comparable cases & determining the cost/value of the international transaction of AMP expenses? (viii) whether, if as per TNMM, the assessee’s profit is found to be as good as the comparables, a separate adjustment for AMP expenses can still be made? (ix) whether the verdict in Maruti Suzuki 328 ITR 210 (Del) has been over-ruled/ merged into the order of the Supreme Court so as to cease to have binding effect?

S. 50C applies only to the transfer of “land or building” and not to the transfer of all “immovable property“. Accordingly, though FSI and TDR is “immovable property” as held in Chedda Housing Development vs. Babijan Shekh Farid 2007 (3) MLJ 402 (Bom), it is not “land or building” and so cannot be the subject matter of s. 50C. The property acquired for development (in lieu of which the FSI/TDR was granted) also cannot be considered even though the property continues to stand in the assessee’s name in the property records. The property should be valued by the DVO net of the land transferred to the Developer by the assessee after considering the acquisition made by the Govt & the Municipal Corporation and also excluding the value of TDR or additional FSI included in the consideration shown in the Development Agreement

S. 50C applies only to the transfer of a “capital asset, being land or building or both”, “assessed” by any authority of a State Government for stamp duty purposes. The expression “transfer” has to be a direct transfer as defined u/s 2(47) which does not include the tax planning adopted by the assessee. S. 50C is a deeming provisions and has to be interpreted strictly in accordance with the spirit of the provision. On facts, the subject matter of transfer is shares in a company and not land or building or both. The assessee did not have full ownership on the flats which are owned by the company. The transfer of shares was never a part of the assessment of the Stamp duty Authorities of the State Government. Also, the company was deriving income which was taxable under the head ‘income from property’ for more than a decade. Consequently, the action of the AO & CIT(A) to invoke s. 50C to the tax planning adopted by the assessee is not proper and does not have the sanction of the provisions of the Act

The assessee is seeking extension of stay beyond 365 days. The assessee argued that on similar facts the matter is pending before the Supreme Court in case of Idea Cellular Ltd and Bharti Cellular Ltd wherein ad interim order had been passed. In CIT vs. Ronuk Industries Ltd 333 ITR 99 (Bom) & Tata Communications Ltd 138 TTJ 257 (Mum) (SB) it has been held that the Tribunal has power to extend the period of stay beyond 365 days under the Third Proviso to s. 254(2A) even if the delay in disposing off the appeal is not attributable to the assessee as there may be several other reasons for not disposing of the appeal by the ITAT. In Qualcomm Incorporated (ITAT Del) it was held that as there was a cleavage of opinion between the Bombay High Court and the Karnataka High Court and there was no decision of the jurisdictional High Court on the issue, the view favourable to the assessee has to be adopted. Consequently, the stay has to be extended subject to certain conditions

The assessee’s argument, with regard to the sale of shares in AITPL, that the TPO was bound by the CCI guidelines on valuation of shares is also not acceptable because the CCI guidelines were issued for a totally different purpose and cannot be transported into a pricing methodology prescribed for fixing ALP. Instead, the Discounted Cash Flow method for valuation is an accepted international methodology for valuing enterprises and for determining the value of the holding of an investor. Investors are interested in ascertaining the present value of their investments, considering the future earning potential of the underlying asset. Ascertaining the net present value of future earnings is more appropriate where market value of an investment is not readily ascertainable by conventional methods

U/s 275(1)(a), the AO cannot pass an order imposing penalty u/s 271(1)(c) if the relevant assessment is subject matter of appeal before the CIT(A). The same analogy will apply where the CIT(A) initiates penalty and the first appeal is pending before the Tribunal. Accordingly, the assessee’s request that the penalty proceedings should be stayed till the disposal of appeal by the Tribunal is not unreasonable. If the CIT(A) is allowed to proceed with the penalty proceedings, prejudice will be caused to the assessee as it will have to face multiplicity of proceedings. In case the assessee succeeds in the quantum appeal, the penalty order passed by the CIT(A) will have no legs to stand while if the assessee fails in the quantum appeal, the CIT(A) will get ample time of six months to dispose of the penalty proceedings. Therefore, to prevent multiplicity of proceedings and harassment to the assessee, the CIT(A) is directed to keep the penalty proceedings in abeyance till the disposal of quantum appeal by the Tribunal (CIT vs. Wander (Bom) referred)

In GKN Driveshafts 259 ITR 19 (SC) it was held that the AO is bound to furnish the reasons recorded for reopening the assessment within a reasonable time so that the assessee can file its objections thereto. Even as per the rules of natural justice, the assessee is entitled to know the basis on which the AO has formed an opinion that income has escaped assessment. There is no justifiable reason for the AO to deprive the assessee of the recorded reasons. If the reasons are not furnished to the assessee during the assessment proceedings, then the subsequent furnishing of the reasons after completion of assessment proceedings serves no purpose and amounts to the assessee being denied its right to raise objections to the validity of the reopening proceedings. A reassessment order passed without furnishing the recorded reasons is not sustainable in law. The furnishing of reasons after completion of assessment does not make good the defect/invalidity with which the initiation of proceedings u/s 147/148 is tainted (K V Venkataswamy Reddy (Bang) (attached), Tata International Ltd (ITAT Bom) & Videsh Sanchar Nigam Ltd 340 ITR 66 (Bom) (SLP dismissed) followed)