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DATE: May 16, 2016 (Date of pronouncement)
DATE: May 19, 2016 (Date of publication)
AY: 2004-05, 2005-06, 2006-07
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CITATION:
Entire law on what constitutes a Permanent Establishment (PE) in India in terms of Article 5(1), 5(2)(l) or Article 5(5) of the Indo-USA DTAA explained. If the alleged PE has been assessed on ALP basis in terms of Article 7, no income has escaped escapement so as to justify issue of s. 148 notice

Even if the subsidiary of a foreign company is considered as its PE, only such income as is attributable in terms of paragraphs 1 and 2 of Article 7 can be brought to tax. In the present case, there is no dispute that Adobe India – which according to the AO is the Assessee’s PE – has been independently taxed on income from R&D services and such tax has been computed on the basis that its dealings with the Assessee are at arm’s length (that is, at ALP). Therefore, even if Adobe India is considered to be the Assessee’s PE, the entire income which could be brought in the net of tax in the hands of the Assessee has already been so taxed in the hands of Adobe India. There is no material that would even remotely suggest that the Assessee has undertaken any activity in India other than services which have already been subjected to ALP scrutiny/adjustment in the hands of Adobe India

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DATE: May 11, 2016 (Date of pronouncement)
DATE: May 19, 2016 (Date of publication)
AY: 2012-13, 2013-14, 2014-15
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CITATION:
S. 143(1D): Instruction No.1 of 2015 dated 13.01.2015 which curtails the discretion of the AO by 'preventing' him from processing the return and granting refund, where notice has been issued to the assessee u/s 143(2), is unsustainable in law and quashed

The real effect of the instruction is to curtail the discretion of the AO by ‘preventing’ him from processing the return, where notice has been issued to the Assessee under Section 143(2) of the Act. If the legislative intent was that the return would not be processed at all once a notice is issued under Section 143 (2) of the Act, then the legislature ought to have used express language and not the expression “shall not be necessary”. By the device of issuing an instruction in purported exercise of its power under Section 119 of the Act, the CBDT cannot proceed to interpret or instruct the income tax department to “prevent” the issue of refund. In the event that a notice is issued to the Assessee under Section 143 (2) of the Act, it will be a matter the discretion of the concerned AO whether he should process the return

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DATE: May 13, 2016 (Date of pronouncement)
DATE: May 19, 2016 (Date of publication)
AY: 2007-08
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CITATION:
S. 271(1)(c) penalty on Bogus Purchases: If the assessment order in the quantum proceedings is altered by an appellate authority in a significant way, the very basis of initiation of the penalty proceedings is rendered non-existent and the AO cannot continue the penalty proceedings on the basis of the same notice

Once the assessment order of the AO in the quantum proceedings was altered by the CIT (A) in a significant way, the very basis of initiation of the penalty proceedings was rendered non-existent. The AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also, the Court concurs with the CIT (A) and the ITAT that once the finding of the AO on bogus purchases was set aside, it could not be said that there was any concealment of facts or furnishing of inaccurate particulars by the Assessee that warranted the imposition of penalty under Section 271 (1) (c) of the Act

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DATE: March 18, 2014 (Date of pronouncement)
DATE: May 17, 2016 (Date of publication)
AY: 2006-07
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CITATION:
Inability of the assessee, an Advocate, to reconcile the professional receipts with the TDS certificates and to give a detailed party-wise breakup of fees receipts does not mean that the difference can be assessed as undisclosed income

The assessee was engaged as an Advocate to argue the matters by what is popularly known as Advocates on record or instructing Advocates method, meaning thereby the client does not engage the assessee directly but a professional or the Advocate engaged by the client requests the assessee to argue the case. The brief is then taken as the counsel brief. That being the practice, the assessee gave an explanation that the breakup as desired cannot be given and with regard to all payments. It is pointed out that at times, assessee receives fees directly from the clients or from the instructing Advocates or Chartered Accountants if such professionals have collected the amounts from the clients. Under these circumstances, the breakup as desired cannot be placed on record

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DATE: April 6, 2016 (Date of pronouncement)
DATE: May 17, 2016 (Date of publication)
AY: -
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CITATION:
S. 143(2)/ 245R(2): A notice u/s 143(2)(ii) cannot be issued in a routine, casual or mechanical manner but after forming an opinion that it is "necessary or expedient" to do so. A S. 143(2) notice in the standard form is not a bar u/s 245R(2) for admission of an AAR application for advance ruling

Under Section 143 (2) (ii) of the Act, an AO can serve on the Assessee a notice requiring him to attend his office and produce any evidence on which the Assessee seeks to rely in support of return if the AO “considers it necessary or expedient to ensure that the Assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner’. Therefore, the scope of the enquiry that an AO can undertake in terms of Section 143 (2) (ii) is a wide ranging one. What is relevant for the present case is that prior to issuance of the notice under Section 143 (2) (ii) the AO has to form an opinion that it is ‘necessary or expedient’ to ensure that an Assessee has not (i) understated the income or (ii) has not computed excessive loss, or (iii) has not underpaid the tax in any manner. The AO is, therefore, not expected to issue a notice under Section 143 (2) (ii) in a routine or casual or mechanical manner

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DATE: May 6, 2016 (Date of pronouncement)
DATE: May 16, 2016 (Date of publication)
AY: -
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CITATION:
Transfer Pricing: High Court irked at fact that Dept is unaware of which of its matters are admitted/ dismissed. Chief CIT directed to streamline the procedure for filing appeal before the High Court. Adjustment can be made only for transactions attributable to the International taxation

This appeal filed by the Revenue raises questions with regard to whether transfer pricing adjustment consequent to arriving at Arms Length Price (ALP) is required to be done only in respect of the international transactions or this adjustment is to be done in respect of all the business transactions of the assessee i.e. at the entity level. This Appeal was on board and detailed orders were passed indicating that the Revenue has not been bringing to the notice of the Court orders of admission in its favour in the subsequent Appeals filed by it an identical questions. This has resulted in the subsequent appeals filed by the Revenue raising identical questions being dismissed at the stage of admission after having heard the parties at some length

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DATE: May 13, 2016 (Date of pronouncement)
DATE: May 16, 2016 (Date of publication)
AY: 2001-02
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CITATION:
S. 40(a)(i): The law in s. 40(a)(i) that failure to deduct TDS on payment to a non-resident will result in a disallowance violates the non-discrimination clause in Article 26 of the India-USA DTAA because a similar disallowance is not made on payments to residents (pre s. 40(a)(ia))

The argument of the Revenue overlooks the fact that the condition under which deductibility is disallowed in respect of payments to non-residents, is plainly different from that when made to a resident. Under Section 40 (a) (i), as it then stood, the allowability of the deduction of the payment to a non-resident mandatorily required deduction of TDS at the time of payment. On the other hand, payments to residents were neither subject to the condition of deduction of TDS nor, naturally, to the further consequence of disallowance of the payment as deduction. The expression “under the same conditions” in Article 26 (3) of the DTAA clarifies the nature of the receipt and conditions of its deductibility. It is relatable not merely to the compliance requirement of deduction of TDS. The lack of parity in the allowing of the payment as deduction is what brings about the discrimination

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DATE: October 15, 2015 (Date of pronouncement)
DATE: May 6, 2016 (Date of publication)
AY: -
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CITATION:
S. 153A/ 153C: If the assessee stands amalgamated with another Co, it ceases to exists and all proceedings of search u/s 132, notice and assessment u/s 153C on the assessee are a nullity and void ab initio

In identical circumstances, in cases arising out of the same search, this Court has invalidated the assessment proceedings against the Assessee in those cases which, on account of having merged with another entity with effect from a date anterior to the search, also no longer existed on the date of search, on the date of the issue of notice and consequent assessment order passed under Section 153 C of the Act.

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Posted on by Ankul Goyal
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DATE: May 4, 2016 (Date of pronouncement)
DATE: May 5, 2016 (Date of publication)
AY: 2003-04, 2004-05 and 2005-06
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CITATION:
Important principles laid down whether profits arising from off-shore supply of goods can be taxed in India on basis that (a) the goods continued in the possession of seller till acceptance of the goods by buyer in India, (b) the seller had a liaison office in India, (c) the seller had a wholly-owned subsidiary in India which negotiated contacts with the buyer, (d) installation, commissioning etc services were provided in India etc

The controversy whether the Assessee has a PE in India is interlinked to the finding that Nortel India had discharged some of the obligations of the Assessee under the Equipment Contract. Whilst, the Income Tax Authorities have held that the contracts entered into with Reliance – the Equipment Contact, Software Contract and Services Contract – are essentially a part of the singular turnkey contract, the Assessee contends to the contrary. Further, the Income Tax Authorities have held that a part of the Equipment Contract assigned to the Assessee was, in fact, performed by Nortel India. This too, is stoutly disputed by the Assessee. The question whether the Assessee has a PE in India is clearly interlinked with the issue whether Nortel India or Nortel LO had performed any of the functions or discharged any of the obligations assumed by the Assessee. Assessee argued that agreement for supply of hardware (Equipment Contract) could have been directly executed between Reliance and the Assessee but owing to relaince’s insistence on an Indian company being responsible for the entire works, agreements were executed between Nortel India and Reliance, with Nortel Canada as a surety.

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DATE: April 29, 2016 (Date of pronouncement)
DATE: May 4, 2016 (Date of publication)
AY: 1998-99, 1999-00
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CITATION:
S. 153A assessment cannot be made for the AYs in which incriminating material is not recovered even though incriminating material may be recovered for other years in the block of 6 years

It has been noticed by the ITAT in the impugned order that for the AYs in question no incriminating material qua the Assessee was found. In that view of the matter, and in light of the decision of this Court in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi), the Court is of the view that the impugned order of the ITAT suffers from no legal infirmity and no substantial question of law arises for determination

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