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DATE: January 19, 2018 (Date of pronouncement)
DATE: June 13, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 263 Revision: Explanation 2 to s. 263 inserted by the FA 2015 (which confers power upon the CIT to revise assessments where inadequate inquiries have been conducted by the AO) is prospective in nature and does not apply even to a case where the CIT passed the order after Explanation 2 came on the statute. The CIT should show that the view taken by the AO is unsustainable in law. The action of the CIT in directing the AO to conduct enquiry in a particular manner is contrary to the law interpreted by the Delhi High Court in CIT v. Goetze (India) Ltd 361 ITR 505. If such course of action is permitted, the CIT can find fault with each and every assessment order without making any enquiry or verification in order to establish that the assessment order is not sustainable in law

Ld. DR also submitted that in light of the introduction of the Explanation 2 to s.263 by the Finance Act, 2015, the Ld. CIT had power to conduct further enquiry even in a case where inadequate enquiries have been conducted by the Assessing Officer. (a) Crompton Greaves Ltd v. CIT [ITA No. 1994/Mum/2013] dated 01.02.2016, (b) Madhurima International Pvt Ltd v. Pr. CIT [ITA No. 421/Mum/2017] dated 28.04.2017. 23. In this regard, we observe that the aforesaid judgments have been later considered by Hon’ble Mumbai Tribunal in several other cases. Further, in the recent judgments, the Hon’ble Tribunal has taken a view that the provisions to Explanation 2 to s. 263 of the Act introduced by the Finance Act, 2015 is prospective in nature and would not apply to the year under consideration

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DATE: May 29, 2018 (Date of pronouncement)
DATE: June 11, 2018 (Date of publication)
AY: 2007-08
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CITATION:
Bogus Long-term capital gains: As neither the statement of Mukhesh Choksi was provided to the assessee nor cross-examination was allowed and it was not even placed on record, the action of the AO in treating the LTCG and STCG as income from other sources was not warranted

A.O. was of the opinion that capital gains declared by the assessee was bogus. In this regard, A.O. also observed that he received information from the office of Chief Commissioner of Income Tax, Mumbai that M/s. Alliance Intermediaries and Network Pvt Ltd., one of the group companies of Mr. Mukesh Choksi, and also other companies of this group have provided accommodation entries to various persons, including the assessee. Though the assessee has furnished purchase bills of shares, cash receipts for payment of share purchases, account copies of M/s. Alliance Intermediaries and Network Pvt Ltd, the A.O. noticed that the Intermediary i.e., M/s. Alliance Intermediaries and Network Pvt Ltd., was proved to have neither affiliated to Mumbai Stock Exchange nor affiliated to National Stock Exchange which clearly indicates that the transactions were never carried out.

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DATE: May 25, 2018 (Date of pronouncement)
DATE: June 11, 2018 (Date of publication)
AY: 2006-07, 2007-08, 2008-09
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CITATION:
S. 251(1): While the CIT(A) has the power to "enhance the assessment", he has no power to travel beyond the subject-matter of the assessment and is not entitled to assess new sources of income. In order for the CIT(A) to enhance, there must be something in the assessment order to show that the AO applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection (all judgements considered)

The principle emerging from various pronouncements of the Supreme Court is that the first Appellate Authority is invested with very wide powers under Section 251(1)(a) of the Act and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee makes a grievance and ranges over the whole assessment to correct the Assessing Officer not only regarding a matter raised by the assessee in appeal but also regarding any other matter considered by the Assessing Officer and determined in assessment. There is a solitary but significant limitation to the power of revision: It is not open to the Appellate Commissioner to introduce in the Assessment a new source of income and the assessment must be confined to those items of income which were the subject-matter of the original assessment

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DATE: June 5, 2018 (Date of pronouncement)
DATE: June 7, 2018 (Date of publication)
AY: 1997-98
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CITATION:
Entire law explained on (a) whether a subsidiary of a foreign company constitutes "business connection" and/ or "fixed Permanent Establishment" and/or "Dependent Agent Permanent Establishment" of assessee in India, (b) whether any attributes of profits on account of signing, network planning and negotiation of off-shore supply contracts in India could be attributed to such business connection/ permanent establishment and (c) whether notional interest on delayed consideration of supply of equipment and licensing of software taxable in the hands of assessee as interest from vendor financing

HELD by majority in favour of the assessee:

According to the Supreme Court in Formula One World Championship Ltd. vs. CIT, reported in 394 ITR 80 (SC), the ‘disposal test’ is paramount which needs to be seen while analyzing fixed place PE under Article 5(1). Though in our humble understanding, the test of permanency qua fixed place has been slightly diluted by the Hon’ble Court but not the “disposal test”. Again this judgment of Hon’ble Supreme Court has been reiterated and referred extensively in a subsequent judgment by the Hon’ble Supreme Court in the case of ADIT vs. E-Fund IT Solution (2017) 86 taxmann.com 240, wherein the Hon’ble Apex Court had quoted extensively the same views and commentaries and also the judgment of Formula One World Championship Ltd. and held that there must exist a fixed place in India which is at disposal of foreign enterprise through which they carry on their own business. In that case, the Indian subsidiary company of the foreign enterprise was rendering support services which enabled the foreign enterprise in turn to render services to its client and the outsourcing of work to the Indian subsidiary was held to be not giving rise to fixed place of PE. This judgment of the Hon’ble Supreme Court nearly clinches the issue before hand in so far as role of Indian subsidiary while deciding the fix place PE.

HELD by minority in favour of the revenue:

The assessee company had a PE in India by way of the premises and existence of its Indian subsidiary Nokia India Pvt Ltd, and that the profit attributable to the specified operations of this PE are 3.75% of total sales of the equipment in India. The plea of the assessee against the existence of business connection and the existence of permanent establishment is to be rejected, and plea of the assessee on the attribution of profit is to be partly accepted in the terms

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DATE: May 31, 2018 (Date of pronouncement)
DATE: June 7, 2018 (Date of publication)
AY: 2012-13, 2013-14
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CITATION:
S. 44C: A non- resident assessee is entitled to claim deduction of an amount equal to 5% of the adjusted total income as expenditure in the nature of Head Office (HO) Expenses. The fact that the expenses are not debited in the Profit & loss account or the books of account is irrelevant. The entries in the books of account are not conclusive

No doubt, the assessee has not debited the said expenditure in the Profit & Loss Account. However, it is an admitted fact that the assessee has claimed the expenditure in the computation statement. The Mumbai Bench of the Tribunal in the case of British Bank of Middle East (supra) under similar circumstances has held that non-debiting of the expenditure in the books of account of India operations is not relevant for allowability of the same in the light of the law laid down by the Hon’ble Supreme Court in the case of Kedarnath Jute Mills Co. Ltd. (supra). It has been held that as long as the expenditure is really incurred and is otherwise deductible, the deduction cannot be declined on the ground that it has not been debited in the books of account. Since in the instant case there is no dispute to the fact that the head office has incurred the expenditure for the Branch office, the genuineness of which has not been doubted and since the assessee has claimed the deduction u/s 44C of the I.T. Act in the computation statement

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DATE: June 6, 2018 (Date of pronouncement)
DATE: June 7, 2018 (Date of publication)
AY: 2010-11
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CITATION:
Applicability of s. 80 to s. 153A returns: A return filed u/s 153A is deemed to be a return filed u/s 139(1). Accordingly, the restrictive provisions of s. 80 do not apply. The return u/s 153A, once accepted and assessed, replaces the original return filed u/s 139. Therefore, the assessee is eligible for carry forward business loss

Therefore, if the assessee has filed a loss return u/s. 139(3) within the period provided under the Act and if the assessee has filed a revised loss return under Sub- section (5) thereof again within the prescribed time limit, the A.O is bound to take cognizance of the revised return because the original return is replaced by the revised return, held the Tribunal. In the present case before us, undisputedly, the assessment u/s. 153A r.w.s. 143(3) of the Act has been framed on the basis of return filed in response to notice issue u/s. 153A of the Act. Hence, now it is not open to raise contention by the revenue that return was filed beyond the prescribed time period mentioned in the notice issued u/s. 153A of the Act. The return of income filed in response to the notice u/s. 153A on the basis of which assessment in question has been framed thus has replaced the original return for determining the net income in the assessment u/s. 153A of the Act. Thus, in a sense, return filed in response to the notice issued u/s. 153A was a revised return and the assessment was re- assessment

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DATE: May 9, 2018 (Date of pronouncement)
DATE: June 6, 2018 (Date of publication)
AY: 2009-10
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CITATION:
It is painful to note that the Dept officials in order to achieve targets at the close of the FY not only are tempted to ignore the principles of law and natural justice but cross their limits, in complete violation of the orders issued by judicial authorities. They are pressurised by higher officials to do so and they have to choose the lesser risky option of the two i.e. either to face the departmental action for not achieving targets or to face contempt proceedings. They choose the later option because perhaps they think that courts will not opt for strict view in case the amount coercively recovered is refunded after passing of the cut off date i.e. 31st March, and an apology tendered to the Court

Despite severe structures and directions of the Tribunal against the departmental officials passed vide order dated 20.12.2017, which was not only very much in the knowledge of not only of the concerned officials who had done the coercive act of recovery from the assessee but also to the senior officials of the Department. The concerned Principal Commissioner of Income Tax herself had come present to argue the matter in the Stay Application on 29.11.2017 along with departmental representatives and the concerned Assessing officer leading to order dated 20.12.2107. Under the circumstances, it cannot be said that the illegal recovery, even despite strict directions of the Tribunal, has been made by the Assessing officer without the knowledge of the higher officials

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DATE: June 1, 2018 (Date of pronouncement)
DATE: June 2, 2018 (Date of publication)
AY: 2010-11
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CITATION:
S. 147/148: If the reopening is based on information received from the investigation dept, the reasons must show that the AO independently applied his mind to the information and formed his own opinion. If the reopening is done mechanically, it is void. Also, if the reasons refer to any document, a copy should be provided to the assessee. Failure to do so results in breach of natural justice and renders the reopening void

No independent application of mind by the AO to the material forming the basis of the reasons recorded is evincible from the reasons. The AO, in the reasons, has just stated the information received and his conclusion about the alleged escapement of income. As to what the AO did with the information made available to him, is not discernible from the reasons. The reasons must also paraphrase any investigation report, which may form the basis of the reasons and any enquiry conducted by the AO thereon, as also the conclusions thereof. Further where the reasons make a reference to any document, such document and / or relevant portion thereof must be enclosed along with the reasons

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DATE: June 1, 2018 (Date of pronouncement)
DATE: June 2, 2018 (Date of publication)
AY: 2011-12
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CITATION:
S. 2(47)/ 45: Argument that the allotment of shares by the assessee's holding co to foreign investors at huge valuation results in a "transfer"/ "indirect transfer" of the assessee's assets to the foreign investors is not correct. Argument that a multi layered holding structure was deliberately created to avoid taxes in India and to conceal the information about the ultimate beneficiaries is also not correct

The AO had held that a multi layered holding structure was deliberately created to avoid taxes in India and to conceal the information about the ultimate beneficiaries. Having AE.s outside India in itself cannot be held against an assessee. Because of advancement of technology, the globe has become a villge. So, the nature of business has changed a lot. In our humble opinion, assessees are free to decide the manner in which they want to run their businesses.It is said that a citizen is perfectly entitled to exercise his ingenuity so to arrange his affairs as may make it possible for him legally and lawfully not to pay tax, and if his ingenuity succeeds, however reluctant the Court may be to acknowledge the cleverness of the assessee,the Court must give effect to the letter of the taxation law rather than strain that letter against the assessee.

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DATE: April 27, 2018 (Date of pronouncement)
DATE: May 31, 2018 (Date of publication)
AY: 2013-14
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CITATION:
S. 254(2): The limitation period for filing a Rectification Application has to be computed from the date of "communication" of the order and not from the date of passing the order. The fact that the order was pronounced in open court is not relevant because the parties will not be aware of the mistakes therein until after perusal of the order.

So far as the arguments of the Ld. DR that the date of communication is to be taken either as ‘communication or knowledge, actual or constructive’ of the order sought to be reviewed’ is concerned, we are guided by the decision of the full Bench of the Hon’ble Supreme Court in the case of ‘State of Punjab Vs. Mst.Qaisar Jehan Begum and Another’ AIR 1963 SC 1604: (1964) 1 SCR 971. (Full Bench), wherein the Hon’ble Supreme Court while considering the words ‘knowledge either actually or constructively’ has held that the knowledge of award does not mean a mere knowledge of the fact that the award has been made. The knowledge must relate to the essential contents of the award. The said proposition of law can be safely applied to the case in hand. Though the operative part of the order may be in the knowledge of the assessee, however, whether there is any mistake apparent on record in the contents of the order, it can be noticed only after going through the contents of the order

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