As per GKN Driveshafts 259 ITR 19 (SC) and the rules of natural justice, the AO was bound to furnish reasons within a reasonable time so that the assessee could file objections against the same. The adherence to this procedure is a necessity because at the preliminary stage itself, the AO may be satisfied with the explanation of the assessee. A reassessment completed without furnishing the reasons actually recorded by the AO for reopening of assessment is not sustainable in law. The subsequent supply of the reasons would not make good of the illegality suffered at the stage of reopening of the assessment. On facts, though the assessee asked for the recorded reasons, the same was supplied to him only after the passing of the reassessment order. This failure on the part of the AO renders the reassessment order invalid (Fomento Resorts & Videsh Sanchar Nigam 340 ITR 66 (Bom) (SLP dismissed) followed (included in file))

The AO had not disputed the consideration received by the assessee & the addition had been made solely on the basis of the deeming provisions of s. 50C. The assessee had furnished all the facts of the sale which had not been doubted by the AO. The fact that the assessee agreed to the additions because of the deeming provisions of s. 50C does not mean that he filed inaccurate particulars of his income. The assessee’s acceptance of the addition on the basis of the valuation made by the stamp valuation authority is not conclusive proof that the sale consideration as per the sale agreement was incorrect and wrong and so s. 271(1)(c) penalty cannot be levied (Renu Hingorani (ITAT Mumbai) followed)

Articles 11 & 12 of the DTAA provide that the “tax” chargeable in India on interest and royalties cannot exceed 15% and 10% respectively. The expression ‘tax’ is defined in Article 2(1) to include ‘income tax’ and includes ‘surcharge’ thereon. Article 2(2) extends the scope of the ‘tax’ by laying down that it shall also cover “any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1”. “Cess” was introduced by the Finance Act, 2004 and it is described in s. 2(11) of the Finance Act 2004 as “additional surcharge for purposes of the Union, to be called the “Education Cess on income-tax”. Accordingly, the “education cess” is in the nature of an “additional surcharge” and is covered by Article 2. Accordingly, education cess cannot be levied in respect of the assessee’s tax liability

hough the proceeds of the premium notes on which the redemption premium was paid had been invested in the shares/debentures of RUPL and although the dividend income and LTCG from the said investment was exempt u/s 10(23G), the premium cannot be regarded as expenditure incurred exclusively in relation to earning of exempt income so as to invoke s. 14A because the said investment had the potential of generating taxable income in the form of STCG etc

The department’s argument that if the sum is not assessable as “fees for technical services”, it is assessable as “other income” Article 23 of the DTAA is not acceptable because that Article applies only to “items of income which are not expressly mentioned in the foregoing Articles of this Agreement”. Article 23 does not apply to items of income which can be classified under Articles 6-22 whether or not taxable under these articles. Therefore, income from consultancy services, which cannot be taxed under articles 7, 12 or 14 because the conditions laid down therein are not satisfied, cannot be taxed under article 23 either

As regards the assessee’s claim, relying on Ishikawajima-Harima, that offshore supply contracts cannot be taxed, there is a school of thought as advocated in Alstom Transport SA (AAR) that in view of the later & larger bench judgement in Vodafone International 341 ITR 1, the Ishikawajima-Harima is not good law and a “dissecting approach” cannot be adopted. While it is arguable that the observations in Vodafone regarding “looking at the transactions as a whole and not adopting dissecting approach” cannot be applied in all cases where separate contracts are entered into for offshore supplies and onshore services, the observations are applicable in cases where the values assigned to the onshore services are prima facie unreasonable vis-à-vis values assigned to the offshore supplies, which make no economic sense when viewed in isolation with offshore supplies contract. The transactions have to be looked at as a whole, and not on standalone basis, when the overall transaction is split in an unfair and unreasonable manner with a view to evade taxes. In order that such a situation can arise, it is sine qua non that while the assessee submits the bids for different segments (e.g. offshore and onshore) separately, these bids are considered together, as a single cohesive unit, by the other party, and this fact must be apparent from material on record. The fact that there is a “cross fall breach clause” which provides that a breach in one contract will automatically be classified as breach of the other contract give an indication that the “offshore supplies” contract and “onshore supplies” contract have to be viewed as an integrated contract, this fact by itself does not indicate that the onshore services and supplies contract is understated so as to avoid tax in the source country. That would be the situation in which while offshore supplies show unreasonable profits while onshore supplies and services result in unreasonable losses