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Month: December 2016

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DATE: December 8, 2016 (Date of pronouncement)
DATE: December 19, 2016 (Date of publication)
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CITATION:
S. 147/ 148: A Writ Petition to challenge the issue of a reopening notice u/s 148 is maintainable as per the law laid down in Calcutta Discount 41 ITR 191 (SC). The law laid down in Chhabil Dass Agarwal 357 ITR 357 (SC) deals with the maintainability of a Writ to challenge the reassessment order and does not apply to a challenge to the reassessment notice

The High Courts dismissed the writ petitions preferred by the assessee challenging the issuance of notice under Section 148 of the Income Tax Act, 1961 and the reasons which were recorded by the Assessing Officer for reopening the assessment. The writ petitions were dismissed by the High Courts as not maintainable. The aforesaid view taken is contrary to the law laid down by this Court in Calcutta Discount Limited Company vs. Incom Tax Officer, Companies District I, Calcutta & Anr. [(1961) 41 ITR 191 (SC)]

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DATE: December 9, 2016 (Date of pronouncement)
DATE: December 19, 2016 (Date of publication)
AY: 2012-13
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CITATION:
S. 194C vs. 194J: Law on whether payments for construction, erection & commissioning etc of plants involving inputs from technical personnel constitutes "payments for technical services" and attracts TDS obligations u/s 194J in the light of Bharti Cellular 330 ITR 239 (SC) explained

The contention of the revenue that in accordance with the judgement of the Supreme Court in Commissioner of Income Tax Vs Bharti Cellular Ltd., (2011) 330 ITR 239 (SC), the matter ought to be remanded to the Assessing Officer to examine technical experts on this issue is not well founded. Firstly, the department never made an application for examining an expert. Secondly, it is not the department’s case that there was any material other than the contracts which required consideration. Apart from raising this contention, no such case was made out even before us at the hearing of this appeal. The case before us merely requires a construction of the contract. The extent of human intervention that was relied upon by the department is based on the provisions of the contract itself

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DATE: September 14, 2016 (Date of pronouncement)
DATE: December 14, 2016 (Date of publication)
AY: 2006-07
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CITATION:
Transfer Pricing adjustment has to be done only in respect of International Transactions with Associated Enterprises. The fact that the assessee has chosen entity level PLI to benchmark the AE transactions and that it has not maintained segmental accounts is irrelevant. If segmental accounts are not available, proportionate adjustments have to be made only in respect of the international transactions with Associated Enterprises

One must not lose sight of the fact that the transfer pricing adjustment is done under Chapter X of the Act. The mandate therein is only to redetermine the consideration received or given to arrive at income arising from for International Transactions with Associated Enterprises. This is particularly so as in respect of transaction with non Associated Enterprises, Chapter X of the Act is not triggered to make adjustment to considerations received or paid unless they are Specified Domestic Transactions. The transaction with non Associated Enterprises are presumed to be at arms length as there is no relationship which is likely to influence the price. If the contention of the Revenue is accepted, it would lead to artificial increase in the profits of transactions entered into with non Associated Enterprises by applying the margin at entity level which is not the object of Chapter X of the Act. Absence of segmental accounting is not an insurmountable issue

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DATE: December 7, 2016 (Date of pronouncement)
DATE: December 12, 2016 (Date of publication)
AY: 1999-00
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CITATION:
S. 4: Law laid down in Sahney Steel 228 ITR 253 (SC) and Ponni Sugars 306 ITR 392 (SC) regarding the taxability of subsidies as a revenue receipt does not apply to voluntary subsidies (subvention) paid by a holding company to its loss making subsidiary. The said subsidy is to protect the capital investment of the holding company and is a capital receipt in the hands of the recipient

The question of law that was presented before the High Court, namely, whether subvention was capital or revenue receipt, was sought to be answered by the High Court by making a reference to two decisions of this Court in Sahney Steel & Press Works Ltd., Hyderabad versus Commissioner of Income Tax, A.P.-I, Hyderabad [(1997) 7 SCC 764]/ 228 ITR 253 and Commissioner of Income Tax, Madras versus Ponni Sugars and Chemicals Limited [(2008) 9 SCC 337]/ 306 ITR 392 (SC). The view expressed by this Court that unless the grant-in-aid received by an Assessee is utilized for acquisition of an asset, the same must be understood to be in the nature of a revenue receipt was held by the High Court to be a principle of law applicable to all situations. The aforesaid view tends to overlook the fact that in both Ponni Sugars (supra) and Sahney Steel (supra) the subsidies received were in the nature of grant-in-aid from public funds and not by way of voluntary contribution by the parent Company as in the present cases. The above apart, the voluntary payments made by the parent Company to its loss making Indian company can also be understood to be payments made in order to protect the capital investment of the Assessee Company. If that is so, we will have no hesitation to hold that the payments made to the Assessee Company by the parent Company for Assessment Years in question cannot be held to be revenue receipts

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DATE: November 30, 2016 (Date of pronouncement)
DATE: December 12, 2016 (Date of publication)
AY: 2004-05
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CITATION:
S. 271(1)(c) penalty cannot be levied in a case where the assessee has relied on legal opinion of a professional and there is no tax impact i.e. the loss disallowed in year one is allowed set-off in a later year

The Tribunal noted that the respondent had claimed the set off of its business income of Rs. 1.85 crores against the brought forward business losses of the earlier years on the basis of a legal opinion received from a leading firm of Chartered Accountants. The Tribunal found nothing clandestine in the manner in which the opinion was sought. In any event, even our attention was not invited to anything which suggests any malafides either in the obtaining of the opinion or otherwise. Further, the loss was allowed to be carried forward in the assessment year, namely, assessment year 2002-2003

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DATE: October 14, 2016 (Date of pronouncement)
DATE: December 12, 2016 (Date of publication)
AY: 2006-07, 2007-08
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CITATION:
S. 147 reopening opens a "Pandora's box" and cannot be done in a casual manner. The reasons cannot be based on mere doubts or with a view to verify basic facts. If the AO takes the view that the income referred to in the reasons has not escaped assessment, he loses jurisdiction to assess other escaped income that comes to his notice during reassessment

The Reasons have been recorded on the basis of mere doubts. There were no bases with the AO to allege that too with the support of any cogent material that impugned income was not included by the assessee in its income offered to tax. Reopening of an assessment is not permitted merely on the basis of some notions or presumptions. Nor it is allowed merely for making verification of some basic facts. There must be existence of some tangible material indicating escapement of income. Then only, an AO is permitted to resort to provisions of reopening contained in sections 147 to 151 of the Act. Because, once an assessment is reopened on valid basis, entire pandara’s box is open before the AO. Therefore the AO may then bring to tax not only income escaped from tax which was mentioned in the Reasons recorded, but also any other escaped income that may come to his notice during the course of reassessment proceedings. Reopening of an assessment attacks and pierces the concept of finality of litigation. Therefore, an invalid reopening done in the casual manner and without following parameters of law may cause undue hardship to the taxpayers

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DATE: November 22, 2016 (Date of pronouncement)
DATE: December 8, 2016 (Date of publication)
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CITATION:
S. 2(42C)/ 50B: The fact that certain assets of the "undertaking" are left out of the sale transaction because it would cause inconvenience for the purchaser does not mean that the transaction is not a "slump sale". To expect a purchaser to buy and pay value for defunct or superfluous assets flies in the face of commercial sense

The sale transaction was reported for a total consideration of Rs.45.83 crores. The sale was for a going concern, which included ongoing service contracts, employment contracts and other tangible assets, and intangible assets such as technical know-how etc. To expect a purchaser to buy and pay value for defunct or superfluous assets flies in the face of commercial sense. Unfortunately, the Revenue’s understanding is that in a going concern the buyer is bound to pay good money, transact and purchase bad and irrecoverable debts. Not only does it fly in the face of common and commercial understanding, but it is not even a pre-condition , as is evident from the definition of “undertaking”, cited in Explanation (1) to Section 2 (19) (A) of the Act

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DATE: August 31, 2016 (Date of pronouncement)
DATE: December 8, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 147: If the AO reopens the assessment on information supplied by the audit party without application of mind, the reopening is invalid. Likewise, if the AO disputes the findings of the audit party, he is not entitled to reopen the assessment. The reasons must show independent application of mind of the AO

The law on the point laid down by the Supreme Court in judgement in case of Commissioner of Income-tax v. P.V.S. Beedies Pvt. Ltd. reported in (1999) 237 ITR 13 and in case of Indian and Eastern Newspaper Society v. Commissioner of Income-tax reported in (1979) 119 ITR 996 is well settled. We also have the decision of this Court in case of Adani Exports v. Deputy Commissioner of Income Tax reported in (1999) 240 ITR 224(Guj) on this issue. In case of Indian and Eastern Newspaper Society (supra), the Supreme observed that the opinion of the audit party on a point of law could not be regarded as information enabling the Assessing Officer to initiate reassessment proceedings. This aspect was elaborated by Division Bench judgement of this Court in case of Adani Exports (supra) observing that it is the satisfaction of the Assessing Officer for the purpose of reopening which is subjective in nature but when the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficient of the material to such a belief is not open to be scrutinised. However, the decision of the Supreme Court would indicate that though audit objection may serve as an information, the basis on which the ITO can act, ultimate action must depend directly and solely on the formation of belief by ITO on his own, where such information passed on to him by the audit party that income has escaped assessment. In the said case, it was held that Assessing Officer had acted at the behest of audit party and that notice for reopening was therefore, bad in law

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DATE: November 16, 2016 (Date of pronouncement)
DATE: December 8, 2016 (Date of publication)
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CITATION:
Transfer Pricing: As per CBDT's Instruction No.3/2016 dated 10.03.2016, the AO is required to give an opportunity to the assessee to show cause why the reference should not be made to the TPO and thereafter pass a speaking order while making a reference to the TPO. The failure to do so renders the reference void

No speaking order has been passed by the Assessing Officer while making a reference to the TPO, which is a requirement as per the Instruction No.3/2016 dated 10th March, 2016, issued by the CBDT. Before making a reference to the TPO, the assessee is required to be given an opportunity to show cause why the reference may not be made to the TPO and thereafter a speaking order is required to be passed by the Assessing Officer while making a reference to the TPO

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DATE: May 27, 2016 (Date of pronouncement)
DATE: December 7, 2016 (Date of publication)
AY: 2006-07
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CITATION:
S. 282: Entire law on pre-requisites for valid service of notice and drawing of a presumption that the notice has been validly served explained

The presumption of valid service of notice can only be made if the Revenue successfully established that the aforementioned four conditions have been categorically and cumulatively fulfilled and complied. At the same time, we may also point out that the said presumption is not permissible which demolished the case of the Revenue based on presumption of valid service of notice at any of the four stages mentioned above

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