TaxTMI 
TaxTMI 
2015 (5) TMI 820
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....y u/s 133A was conducted on the Gurgaon Corporate office and Chennai factory premises of assessee on 8-1-2013. The AO has passed order u/s 201/201(1A) read with section 195 of the I.T. Act, on 15-3-2013. The AO pointed out that the main server and the administrator rights of this system were located at Finland. The employees of NIPL were given user rights on need basis. Reports were generated from the system at Chennai, regarding the payments made by NIPL to Nokia Corporation for software required to be installed in the mobile handsets during manufacturing. He has further observed that these reports were cross checked, collated and compiled year-wise by the employees of NIPL. The invoices raised by Nokia Corporation for software payments were also found and impounded during the course of survey at factory premises at Chennai. 2.2. He has further observed that in course of survey it was found that since commencement of operation at its manufacturing facility in Chennai i.e. FY 2006-07 to 2011-12, NIPL had been making payments for software to Nokia Corporation to the tune of US $ 3,36,26,31,484/- for use in its manufacturing operations as detailed hereunder: S. No. F.Y. Amount in....
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....law. 3. The aforementioned observations were based on his detailed examination of how the transaction was executed which has been considered in para 3.2 of his order. The AO took into consideration the various e-mails, agreements, invoices and statements recorded during the course of survey and concluded that payments made to Nokia Corporation were towards royalty, as agreed by both parties, in the nature of royalty or not. 4. At the outset both the parties requested that first the decision be rendered on the preliminary issue concerning the legality of survey proceedings; reliance to be placed on the evidence collected during survey proceedings and observance of principle of natural justice while framing the order u/s 201/201(1A). The appeal was, therefore, heard apropos the grounds concerning these issues. 5. Ld. Sr. Counsel, Shri Porus Kaka submitted that survey could not be made for TDS proceedings. He pointed out that section 133A(2A) has been newly introduced by the Finance (No. 2) Act, 2014 w.e.f. 1-10-2014, which only entitles the income-tax authorities to conduct survey in regard to TDS proceedings. In this regard ld. Sr. Counsel referred to proviso to sub-section (3), ....
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....mitted that in course of survey, only those persons could be examined who were present at the time of survey. Therefore, there was no occasion to question either the auditors of NIPL or Mr. Jitender Grover, who was no longer part of Nokia and, therefore, summon u/s 131 could not be issued to them. 5.6. Thus, in sum and substance, ld. Sr. Counsel submitted that the summons issued u/s 131 were without any authority of law and the statements recorded or documents collected pursuant to the summons cannot be used against assessee in any legal proceedings. 5.7. Ld. Sr. Counsel further submitted that since the assessee filed its returns at New Delhi and is being assessed to tax under Circle 13(1), New Delhi, any proceeding under the Act pertaining to NIPL could be taken by the appropriate jurisdictional officer having territorial jurisdiction over NIPL. He referred to page 1 of PB Vol. I, wherein the summons u/s 131 dated 11-1-2013 addressed to Shri Arja Bjorklund, Chief Financial Officer, M/s Nokia India Sales Pvt. Ltd. from S. Senthil Kumaran, DDIT(Inv.), Unit1(1), Chennai, is contained and submitted that S. Senthi Kumaran was neither the AO of assessee nor having territorial jurisdic....
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....t if evidence has been collected by breach of fundamental right of privacy of employee, then the said evidence cannot be used against the assessee, because it is not a question of exercise of irregular jurisdiction but inherent lack of jurisdiction. 5.13. Ld. Sr. Counsel further submitted that the decision of Hon'ble Supreme Court in the case of Pooran Mal Vs. Director of Inspection 93 ITR 505 (SC), does not deal with the issue regarding breach of privacy, because no such argument was advanced before the Hon'ble Supreme Court on this basis. Ld. counsel relied on the decision in the case of Distt. Registrar and Collector, Hyderabad Vs. Canara Bank AIR 2005 SC 186 and also the decision in the case of R.M. Malkani Vs. State of Maharastra AIR 1973 SC 157. Ld. counsel pointed out that the Hon'ble Supreme Court, inter alia, in para 31, observed as under: "31. ... Article 21 was invoked by submitting that the privacy of the appellant's conversation was invaded. Article 21 contemplates procedure established by law with regard to deprivation of life or personal liberty. The telephonic conversation of an innocent citizen will be protected by Courts against wrongful or high handed interfere....
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....d. Sr. Counsel submitted that this principle has been upheld by the Hon'ble Supreme Court in a number of judicial precedents. In Suraj Mall Mohta and Co. v. A. V. Viswanatha Sastry, (1954) 26 ITR 1 (SC) the Supreme Court has ruled that assessment proceedings before the Income Tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before the result is arrived at. The assessee has a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal. This right has not been taken away by any express provision of the Income Tax Act. This principle has also been re-emphasized by the Hon'ble Supreme Court in Dhakeshwari Cotton Mills v. Commissioner of Income Tax [1954] 26 ITR 775 and C.B. Gautam v. Union of India: (1993) 199 ITR 530 (SC). The right to a fair hearing requires that the assessee be given an opportunity to effectively rebut the evidence sought to be relied upon by the revenue against the assessee. An effective right to cross-examine witnesses whose statements are sought to be used against the assessee is a sine qua non of such a right. The Hon'ble Allahabad High Court h....
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.... Tribunal have been permitted to be cross examined despite request to crossexamine them by the assessee. The assessee was not provided adequate opportunity to rebut the statements of witnesses used against the assessee in the impugned order, nor was the assessee given an opportunity to' cross examine these witnesses. The cross-examination assumes greater importance especially in a case where an authority is treating the statements as the basis of the order and they are recorded in an illegal survey action. In the present case, the Revenue's entire case is based on statements of witnesses. As a necessary concomitant of the audi alteram partem the assessee has to be afforded the opportunity to cross-examine the witnesses, in the interest of the principles of natural justice. Ld. Sr. Counsel relied on following decisions :- - New India Assurance Company Ltd. v. Nusli Neville Wadia: (2008) 3 SCC 279. - State of Kerala v. K.T. Shaduli Grocery Dealer Etc: (1977) 2 SCC 777 - Tribunal (TM) in Sunil Agarwal v. ACIT: (2002) 76 TTJ (Del) 748 - CIT v. Virgin Securities & Credits: 332 ITR 396 (Del) and - CIT v. SMC Share Brokers Ltd: 288 ITR 345(Del) - Vasantlal (C.) and Co. v. Co....
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....ssee has filed written submissions on this issue on 17-12-2014 which are placed on record. 6. Ld. Spl. Counsel Shri G. Dave vehemently opposed the submissions advanced by ld. representatives of the assessee. 6.1. At the outset Shri Dave submitted that the Tribunal being creature of statute has no power to look into the validity of survey. Shri Dave referred to section 253 of the I.T. Act, which enumerates various orders which can be assailed before Tribunal by way of appeal. He pointed out that none of the action taken by DDIT has been enumerated in section 253 and, therefore, Tribunal cannot examine the validity of survey. 6.2. Shri Dave further submitted that assessee has not taken any ground in form no. 36 challenging the validity/ legality of survey. In this regard he submitted as under: "In ground No.1, the allegation is against the DDIT (International Taxation) of having not followed principles of natural justice in the course of proceedings under section 201/201(A). In ground No.2, non-cooperation on the part of the employees as alleged by the Officers conducting survey is denied. In ground No.3, it is stated that learned CIT (A) erred in law by holding that the learned ....
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.... challenge in independent proceedings where the question of validity or otherwise of administrative order could be gone into. In this regard he placed reliance on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Paras Rice Mills 313 ITR 182. 6.5. In sum and substance, the ld. Spl. Counsel submitted that though orders u/s 201/201(1A) can be assailed before Tribunal, but the actions taken u/s 133A cannot be assailed because for the purposes of section 133A, the DDIT(Inv.), Chennai was only an authorized person. 6.6. Without prejudice to aforementioned arguments ld. Special Counsel submitted that survey u/s 133A of the Act at Chennai and Gurgaon were authorized by the Addl. Director of Investigation, Chennai and Addl. Director of Income-tax (International Taxation), New Delhi separately. He filed before us authorization issued by these authorities. Ld. Spl. Counsel also filed notification issued by the CBDT notifying the territorial jurisdiction of the Director of Income-tax (Inv.), Chennai to demonstrate that the DIT(Inv.) Chennai's territorial jurisdiction extended to Tamil Nadu and Pondicherry except Mahe and Yenam. He, therefore, submitted that the offi....
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....Enforcement 155 ITR 166 (AC); - ITO Vs. U.K. Mahapatra & Co. 186 Taxman 181 (SC). 6.10. As regards the plea of ld. counsel for the assessee that in course of survey u/s 133A statements could not be recorded on oath and if so, recorded, have no evidentiary value, ld. Spl. Counsel submitted that Hon'ble Bombay High Court in the case of Dr. Dinesh Jain Vs. ITO 363 ITR 210 considered this issue and has, inter alia, observed as under: "The requirement of recording a statement on oath is found in section 132 of the Act, i.e. during search and seizure proceeding and such a requirement is not found in section 133A of the Act. Nevertheless a statement under section 133A of the Act does not lose its evidentiary value merely because it is made on oath. Besides the statement in this case is one of the evidences being relied upon and not the sole evidence. The Tribunal in the impugned order has recorded that the addition of income is based not only on the statement of the appellant-assessee but also based on "page 17". The case law relied upon by the appellant in the matter of CIT v. S. Khader Khan Son [2013] 352 ITR 480 (sq arising from the decision of the Madras High Court in CIT v. S. Kh....
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....be in know of facts. He further pointed out that it was only on 24-1-2013 that Mrs. Arja Bjorklund, the CFO of the assessee, brought on record two documents, being software supply agreement of 1-1-2006 and another undated document titled "Agreement for software Delivery Procedures", therefore, her statement on 24-1-2013 was necessitated. He further submitted that since the genuineness of these documents required inquiries in view of the attendant circumstances in which these were produced and documented, the DDIT (Inv.), Chennai made enquiries by recording the statements of all the seven technical personnel responsible for downloading of the software on 7-2- 2013. He submitted that in any proceedings the statements recorded are need based and sometimes for further enquiries or confirmation. 6.14. Ld. Spl. Counsel in sum and substance submitted that under the provisions of section 131(1A), the DDIT (Inv.) Chennai was fully authorized to record the statements. 6.15. Ld. Spl. Counsel vehemently submitted that revenue has serious objections to the raising of such contentions in the course of reply by the revenue when ld. sr. counsel had fully argued his appeal for many days on all is....
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.... noting made by the CIT (Appeals) as obtained from the file of the CIT (Appeals) on this letter has been filed by Revenue. However, the assessee did not specify the employees to whom assessee wanted to cross examine. Only cross examination of technical expert Mr Krishna Sastry Pendvala was seriously asked for which was allowed by ld. CIT(A). As regards others the asseessee had pointed out that it will be in a position to take this call only after cross-examining Mr. Sastry. He submitted that on 20.05.2013, Mr Sastry was examined and on 21.05.2013, he was re-examined. After the cross-examination of Mr Sastry, the assessee-company filed letters to the CIT(Appeals) on 23.05.2013, 24.05.2013 & 27.05.2013. In none of these letters, the Company sought to cross-examine any person other than Mr Sastry. Ld. Special Counsel pointed out that before CIT(A) assessee had, inter-alia, submitted as under ; "appellant may not have the need of cross-examination any other witnesses once the appellant cross-examines Mr. Sastry, In any case, the appellant will be in a position to take this call only after cross-examining Mr. Sastry".After examination of Mr. Sastry, no request for cross-examination was....
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....hts supplied by M/s. Nokia Corporation, Finland were being made regularly. Thus, Assessing Officer did not solely relied on the statements of employees only but used them to corroborate his findings. Ld. Special Counsel further submitted that at page 22 of his order, the AO has clearly stated that the statements without exception are relied upon not to establish the default, but to corroborate certain aspects such as the manufacturing process, the software downloads, the manual preparation of invoices, basis of preparation and that there was no material change in the whole process of doing so since inception. The AO at page (22) of his order has held that the contention of the assessee was not acceptable for reasons as under: 1. The individuals in whose case statements have been recorded are responsible and accountable employees of the company, who have recorded without any fear, coercion and influence; 2. The statements have been corroborated with the other enquiries and business activities of the enterprise before deriving any conclusions; 3. The statements are not made under any misconception of facts but to explain the facts; and 4. Statements are one of the best forms of e....
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....1451TR 11 (SC).Therefore, this argument deserves rejection. 6.21. He further submitted that natural justice is no unruly horse, no lurking land mine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. This was so held by Hon'ble Apex Court on the issue of natural justice in the case of Chairman, Board of Mining vs Ramjee reported in AIR 1977 SC 965. 6.22. Ld. Special Counsel further submitted that it seems quite interesting that in the VTT report furnished before CIT (Appeals) as additional evidence by the assessee-Company at Page (31), the VTT researchers have obtained inputs beside a few other individuals on need basis at Chennai, from two lead presenters, namely, (1) Shri E. Umashankar and (2) Shri Nikhil Gopalakrishnan, who also explained the process of download of software to the officers of the Department in the course of survey. There is no reference to the process explained by these two persons as to whether their explanation t....
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.... as well as discussion in para 3.3 under the heading "How is the transaction executed" and his finding in para 3.3.6 at page 57 & 58 all the aspects have been dealt in detail and the assessee has not pointed out any factual inaccuracy in any of the statements relied upon by AO for arriving at his conclusion. The assessee did not spell out either before the AO or before CIT(A) as to how the statements made by the persons adversely affected it; that something has been said which does not borne out from the factual situation. 6.27. The assessee has not taken any ground to this effect in form no. 36. At no stag of proceedings the assessee was able to spell out as to in what way it feared that the statement given by its employees or ex-employees did not provide true and correct state of affairs though these were made available to the assessee well in time with show cause notice. 6.28. At the stage of appeal proceedings before ld. CIT(A) despite his instructions, the assessee never came forward to indicate names of persons whose cross-examination would be required for reasons to be given. In course of hearing, ld. Standing Counsel produced before us the noting made by ld. CIT(A) in cou....
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....ribunal is not entitled to go into the legality of the survey proceedings, this being purely an administrative action and u/s 253 no appeal lies against the administrative action taken by the authorities below. The submission is that the Tribunal being creature of statute and, therefore, it is to confine itself for entertaining the appeals which have been provided u/s 253 of the I.T. Act. 7.4. Ld. Spl. Counsel has drawn the analogy on this aspect from the decision of various courts in holding that while hearing an appeal against an order of assessment, Tribunal cannot go into the question or otherwise of any administrative decision for conducting the search as same may be subject matter of challenge in independent proceedings where question of validity or otherwise of administrative order could be gone into. Ld. Spl. Counsel has placed reliance on the decision of Hon'ble Punjab & Haryana High court in the case of Paras Rice Mills (supra). 7.5. We are not inclined to accept the proposition advanced by ld. Spl. Counsel because Tribunal u/s 253(1)(a) entertains the appeals filed against order of CIT(A). U/s 246(1)(i). The appealable orders before CIT(A) include an order passed u/s 2....
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....auses (a) and (b) of section 132(1), would not comply with the directions and has in his possession certain money, bullion, jewellery or other valuables or things, which had not been or would not be disclosed. Whereas, in case of survey u/s 133A, designated authorities can enter into the business premises for checking and verification purpose of cash, stock, documents, books of a/c etc. 7.6. Therefore, it is evident that survey is part and parcel of proceedings which include assessment proceedings as well as the action taken u/s 201/201(1A). We, accordingly, are not in agreement with ld. Special counsel that the validity of survey action cannot be examined while deciding the correctness of the order passed u/s 201. Therefore, Tribunal is well within its powers to examine the challenge to validity of survey. We, therefore, proceed to examine the same. 7.7. The first objection of assessee regarding validity of survey is that under the Income-tax Act, there was no power conferred on Income-tax authorities for conducting survey to verify whether the tax has been deducted or collected at source in accordance with the provisions under subheading 'B' of chapter XVII or under sub-heading....
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....icle or thing checked or verified by him, 7.9. He, therefore, submitted that it is beneficial in the interest of assessee only. 7.10. The object of survey is also to obtain information in respect of any matter which may be useful for or relevant to any proceedings under the Act. The word 'proceedings' has been defined as under: (b) "proceeding" means any proceeding under this Act in respect of any year which may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year. 7.11. On examination of the entire scheme of the Act, we are of the considered opinion that the plea advanced by ld. counsel for the assessee deserves to be rejected for the simple reason that the term 'proceeding', defined u/s 133A, includes the TDS proceedings also. The survey, thus, could be conducted for obtaining information in regard to TDS proceedings also as mandated u/s 133A sub-section (1) clause (iii). We are in agreement with the submission of ld. Spl. counsel that this amendment has been inserted by way of abundant pr....
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....ing thereto in respect of the territorial areas specified in the corresponding entries in column C') of the said Schedule. (c) aurhorises the Directors specified in column (2) of tile Schedule hereto annexed to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the Income-tax authorities who are subordinate to them in respect of such territorial areas as :nay be specified io in such orders. 2. This notification shall come into force on the date of publication in the Official Gazette. SCHEDULE Sl. Nos. Designation of Directors of Income-tax (Inv.) Territorial Area 1. 2. 3. 5. Director of Income-tax (Inv.), Chennai Tamil Nadu and Pondicherry except Mahe and Yenam. 7.13. Therefore, it cannot be said that DDIT, Chennai was not duly authorized to carry out the survey. A bare reading of section 133A(1) makes it clear that survey can be carried out at the place where business or profession is carried on irrespective of the fact whether the place of business or profession is separate from its registered office. The object of survey is to gather information in regard to the proceedings under the Act which is enumerated in....
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....d that books of account were ever maintained in physical form and they were always maintained in the SAP system. iii. When it was requested to show the computerized accounts in the SAP system, the next excuse was that none of them had access to the books of account in the system as per the protocol. iv. When questioned about the agreements entered in to regarding supply of software and other intangibles, everyone feigned ignorance and no such agreements were produced. v. When all the Executives present were requested to explain and show the basis for software pricing along with relevant documentation, all of them evaded to explain and show such basis on one pretext or the other. 2. As a result of such non co-operation, the books of account could not be seen and the survey team could not carry their duties as mentioned under section 133A(3) of the Act. In view of the above, summons under section 131 of Income tax Act, 1961 were issued to the employees and their statements were recorded. Subsequently, some other employees were summoned and examined in the office of the undersigned. Even during these enquiry proceedings, non cooperation continued and the crucial information requir....
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....he DDIT, Chennai could exercise the powers. This sub-section reads as under: "(1A) If the Director General or Director of Joint Director or Assistant Director or Deputy Director, or the authorized officer referred to in sub-section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purposes of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that subsection, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority." 7.17. These powers are given to specific authorities for making any inquiry or investigation relating to income concealed. In the present case main thrust of entire enquiry was to find out true import of payments made by assessee to Nokia Corporation and, accordingly to find out the tax deductible at source. 7.18. The assessee has also submitted that the st....
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....ents taken during the course of survey which were mainly of technical persons who explained the manufacturing process, but submission of revenue is that assessee never objected or pointed out any error in the statements of these employees and there is no need for any crossexamination of the technical persons, who were primarily incharge of the operations. The revenue has strongly objected to the time of raising the plea regarding cross-examination being not provided to employees before Tribunal. 11.1. In sum and substance the submission of revenue is that statements had only corroborative value and the conclusion was not drawn solely relying upon the said statements and, therefore, there is no need for cross examination of employees. 12. Before we embark upon to examine the contentions of both the parties on this count, it would be useful to discuss the scope of principles of natural justice. Rules of natural justice traditionally comprised of the rules audi alterm partem and nemo judex in causa sea. Rule of audi alterm partem requires the maker of a judicial or quasi judicial decision to give prior notice of the decisions to persons affected by it and an opportunity for those pe....
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....9;the deputy commissioner proposes to take into consideration, whether such 'evidence' be proffered by another person represented at the hearing, or is discovered by the deputy commissioner as a result of his own investigations; (c) to allow each person represented to comment upon any such 'evidence' and, where the 'evidence' is given orally by witnesses, to put questions to those witnesses; and (d) to allow each person represented to address argument to him on the whole of the case. This in the context of the Act and the regulations fulfils the requirement of the second rule of natural justice to listen fairly to all sides. 12.2. Whether, the decision be based on evidence of some probative value, he further held: " [The] technical rules of evidence, however, form no part of the rules of natural justice. The requirement that a person exercising quasi judicial functions must base his decision on evidence means no more than it must be based upon material which tends logically to show the existence or non-existence of facts relevant to the issue to be determined, or to show the likelihood or unlikelihood of the occurrence of some future event the occurrence of wh....
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....n exercise of statutory powers under the taxation laws of the State." 87. Shri Desai in this connection invited our attention on the ratio of T.Devasahaya Nadar v. CIT [1964] 51 ITR 20 (Mad.), wherein it was held : "It cannot be laid down as a general proposition of law that the Incometax Department cannot rely upon any evidence which has not been subjected to cross-examination. An ITO occupies the position of a quasi-judicial Tribunal and is not bound by the rules of the Evidence Act, but he must act in consonance with natural justice, and one such rule is that he should not use any material against an assessee without giving the assessee an opportunity to meet it. He is not bound to divulge the source of his information. There is no denial of natural justice if the ITO refuses to produce an informant for cross-examination though if a witness is examined in the presence of the assessee, the assessee must be allowed to cross-examine him. The range of natural justice is wide and whether or not there has been violation of natural justice would depend on the facts and circumstances of the case." 88. In the case of State of Punjab v. Bhagat Ram [1975] 1 SCC 155 (SC), therespondent w....
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....sides should be heard fairly and reasonably. A part of this principle is that if any reliance is- record must be placed on evidence or record against a person then that evidence or record must be placed before him for his information, comment and criticism. That is all that is meant by the doctrine of, audi alteram partem. That no party should be condemned unheard. No natural justice requires that there should be a kind of a formal crossexamination. Formal cross-examination is procedural justice. It is governed by rules of evidence. It is the creation of Courts and not a part of natural justice but of legal and statutory justice.Natural justice certainly includes that any statement of a person before it is accepted against somebody else, that somebody else should have an opportunity of meeting it wheather it (sic), by way of interrogation or by way of comment does not matter. So long as the party charged has a fair and reasonable opportunity to see, comment and criticise the evidence, statement, or record on which the charge is being made against him, the demands and the test of natural justice are satisfied. Cross- examination in that sense is not the technical cross-examination i....
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....eard before an order is passed would obstruct the taking of prompt action, such a right can be excluded. This right can also be excluded where the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provisions warrant its exclusion; nor can the audi alteram partem rule be invoked if importing it would have the effect of paralysing the administrative process or where the need for promptitude or the urgency of taking action so demands." 94. DCW Ltd.'s case (supra), para 11 of the said decision (p. 237) is reproduced here as under : "The Supreme Court had an occasion to consider the applicability of the principles of natural justice in a recent case in R.S. Dass v. Union of IndiaAIR 1967 SC 593. The Supreme Court in Chairman, Board of Mining Examination v. Ramjee AIR 1977 SC 965 held as follows : 'Natural justice is no unruly horse, no lurking land mine, nor a judicial cure all. If fairness is shown by the decision maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditional by the facts and circumstances of such situation, no breach of natural justice can be compla....
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....order to reach the conclusions and findings which are adverse to the assessee should be disclosed to the appellant and the witnesses should be offered for cross-examination. Supreme Court in the case of Suraj Mall Mohta & Co. (supra) laid down : "the assessee ordinarily has the fullest right to inspect the records and all documents and materials that are to be used against him. Under the provisions of section 37 of the Indian Income-tax Act the proceedings before the Income-tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before the result is arrived at. In other words, the assessee would have a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal." 97. In the case of K.T. Shaduli Grocery Dealer (supra), it was held (at p.1631) : ". . . the usual mode recognized by law for proving fact is by production of evidence and evidence includes oral evidence of witnesses. The opportunity to prove the correctness of completeness of the return would, therefore, necessarily carry with it the right to examine witnesses and that would include equally the right to cross-examine wi....
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....ith sufficient elasticity and amplitude as to make the right depend on the terms of the statute, the nature of the proceedings or of the function exercised, the conduct of the party and the circumstances of the case. 99. "Whether in a particular case the particular party should have the right to cross-examine or not depends upon the facts and circumstances of a particular case. This is so, because the right to cross-examine is not necessarily a part of reasonable opportunity." This view was taken by the Calcutta High Court in the case of Manindra Nath Chatterjee (supra). Thus in a given case the rule of audi alteram partem may impost a requirement that witnesses whose statements are sought to be relied upon by the authority holding the enquiry should be permitted to be cross-examined by the party affected while in some other case it may not. 100. In the case of Kishanchand Chellaram (supra), the Apex Court was concerned with the evidence which was to be used against the assessee. This was in the form of letter from the Manger of a Bank through which money was remitted. This letter was not shown to the assessee. Therefore, evidence was held not to be admissible. It was held that o....
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....ther or not any rules of natural justice had been contravened, should be decided not under any preconceived notions but in the light of the statutory rules and provisions. The violation or otherwise of any rule of natural justice must be a matter of substance not of mere form. It is important to keep inmind the caveat issued by the Apex Court AIR 1977 SC 965 that unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. 105. In our opinion right to cross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, 'audi alteram partem'. The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence, and is the creation of Court. It is part of legal and statutory justice, and not a part of natural justice, therefore, it cannot be laid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination. However, if a witness has given directly incriminating statement and the ad....
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....were discounted. (ii) The advertisement expenses of the assessee-company were incurred through these secret bank accounts. (iii) Assessee-company donated the funds out of these secret bank accounts, viz., donation to Methodist Church out of transfer of funds from the a/c. of H.K. Patel (in assessment year 1984-85) and donation to the Festival of India Committee out of transfer of funds from the a/c. of Shree Associated [current A/c. No. 1724 in Indian Overseas Bank, Bandra West]. This amount was given at the behest of Sri Sanjay Dalmia, President-cum-Director-General of the Company. (iv) One of such bank a/c. was in the name of Moonlight Finance. This was with the Punjab & Sind Bank, Scindia House Branch, New Delhi. The account holder given the following address : B-72, Himalaya House (7th Floor) 23-Kasturba Gandhi Marg, New Delhi. [Current A/c. No. 787] This was also the office address of Mr. Umesh Khaitan, Sitting Director of the assessee-company. (v) Amounts in the shape of commissions, profits on sale of goods other than cigarettes, technical and supervision charges, etc., were reintroduced in the assessee's a/c. by means of havala entries. In view of the above, Assessi....
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....ubordinate and were used to buttress the main matter connected with the amount of addition. The violation or otherwise of any rule of natural justice must be a matter of substance not of mere form. Natural justice should always be used for the furtherance of the cause of justice. The palladium of justice requires, that law suits be not protracted, otherwise treat oppression might be done under the colour and pretence of law [interest republica ut sit finis litum]. These loafty principles which are harbinger of justice cannot be used for dragging the justice in the labyrinth. We have already indicated that adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature. Having regard to the facts and circumstances of the case, we are of the opinion that there was no denial of the principles of natural justice. 12.4. In the backdrop of above legal proposition now we proceed to examine the facts of the present case. The hearing of this appeal commenced on 28-10-2014 and then continued on 2910,2014, 30-10-2014, 11-11-2014, 12-11-2014. Upto 12-....
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....e Delivery & Procedures which is part of the Agreement dated Ist January,2006. As far as other three documents i.e. at sl. 7, 9 & 11are concerned, Ld. Special Counsel stated that the same may be ignored. Ld. Sr. Counsel further submitted that the assessee be provided cross-examination of the employees, whose statements were recorded during the course of survey and relied upon by AO. Ld. Special Counsel submitted that since the statements are of assessee's employees only, who were associated with the actual operations of the assessee's business, therefore, no cross-examination needs to be provided. Ld. Senior Counsel, in reply, submitted that the employees were not knowing as to what were the settings in SAP, how the software product was manufactured and sealed in binary coding, which was not capable of tempering with and other aspects. After hearing both the parties, the Bench directed the assessee's representative to file a detailed note on his preliminary objections, with a copy to ld. Special Counsel for Revenue, so that the issues may be crystallized." "10/2/15: The assessee counsel: Shri P.Kaka Sr. Adv. Deptt. Sh. G. Dave Adv. (Spl. Counsel) The Ld. G. Dave (Spl. Couns....
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....r right of need base. In course of survey the reports were generated from the system at Chennai in regard to the payments made by NIPL to Nokia Corporation. These reports were cross checked and verified by the employees of NIPL in course of survey. The invoices were also impounded which were raised by Nokia Corporation of software payments at Chennai Factory. These invoices were raised at Chennai factory. The AO examined the various details with respect to commercial agreement submitted by the assessee. All these preliminary details led to the AO's belief that payments were made for down loads made by NIPL under the agreement for use in manufacture of mobile phones. He, therefore, examined the TP documentation software supply agreement dated 1-1-2006 and R&D sub-contract agreement between M/s Nokia Corporation Finland and NIPL to find out the true nature of payment made by assessee to M/s Nokia Corporation. He also noticed one important aspect that he invoices were prepared manually by employees of NIPL on behalf of Nokia Corporation OYZ. The assessee's claim was that the payments made for software was on account of purchase of raw-material and, therefore, it was not covered u/s 19....
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....findings. 14.1. As noted earlier, the invoices raised by Nokia Corporation were impounded during the course of survey on 8-1-2013 at Nokia factory Chennai. The invoices were submitted before the SEZ Customs authorities along with bill of entry. These invoices specified the details for software payments made by NIPL. This was also used by AO to arrive at his conclusions. 14.2. As noted earlier, the main issue was to find out the nature of transaction and, therefore, it was necessary to find out the manufacturing process at the factory premises. In this regard AO relied upon the statements of technical experts, the extracts from which are reproduced hereunder to demonstrate that there was no contradiction between statements of various top ranking technical experts of asessee-company. 14.3. In this regard the first statement of factory head and director operation Prakash Katama was recorded. This statement is contained at pages 602 to 604 of the PB. The question no. 1, 3,4,5,6,9 and 10 are to be reproduced. Q.l Please furnish the list of Top employees working at Chennai Plant? Ans. Top employees are myself Director (Operations), Shri.Subbiah C and Shri.Ritchie Rice are Heads of P....
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....t statement relevant in the present context is of Ms. Arja Bjorklund in course of survey on 8 & 9 and subsequently on 24-1-2013 and 31-1-2013 . The statement is contained at pages 565 to 569 and at pages 605 to 632 of the PB. Relevant questions and answers thereof are reproduced hereunder: "Q.1: Please furnish details of your association with Nokia group of companies. Ans: I am associated with Nokia Group of companies since Nov. 20004. I was working with Nokia Corporation, Finland from 2004 to 2010, stationed at Finland. From April, 2010 to April, 2012, I was working with Nokia India Pvt. Ltd. In April, 2012, I became CFO of Nokia India Pvt. Ltd. Sine 1st January, 2013, I 'm posted as CFO of Nokia India Sales Pvt. Ltd. Q.2: What is your present role in the affairs of Nokia India Pvt. Ltd? Ans: In Nokia Sales India Pvt. Ltd., presently I'm supporting the whole India support in compliance matters when needed, for example in training, compliance roles etc. Till March, 2013, the person in the helm of affairs of accounting matters of Nokia India Pvt. Ltd. i.e. Mr. Tanuj Patro, will be reporting to me. Q.5: Please furnish a detailed description of manufacturing activities of 'Nokia ....
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....all such agreements. Ans: There are usually four agreements, one should be regarding "Contract Manufacturing agreement", second should be on sales and distribution agreement, third should be on R&D and services and fourth should, be service agreements. I shall produce copies of those agreements we have in place in India. 15.1. Next statement of Jitendra Grover recorded by the DDIT, Chennai u/s 131(1A) of the Act on 4-2-2013 and 5-2-2013, is contained at pages 665 to 680 of the PB. Relevant questions and answers thereto are reproduced below: Q.2: Kindly tell me about yourself? Ans: I am Chartered Accountant by profession. I completed my CA. in Jan. 98. I first worked with Siemens telecom for two years, then two years with KPMG. In 2003 I moved to Ariba India Pvt. Ltd. In 2005, I was with Ericsson. In May 2008, I joined NIPL and was with NIPL up to 10th Sept., 2012. Now I am working with Aricent Technologies, Gurgaon. Q. 3: What were your roles and responsibilities as Taxation Head in M/s NIPL from 2008 to 2012? Ans: I was Tax manager for India corporate tax and was responsible for planning, commenting on business model change, transfer pricing etc. from India Tax perspective. ....
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....o, since 2006 the method followed was to value every item around excluding the software and in accordance with global transfer pricing policy, Nokia gave cost Plus margin to India factory. The balance part of cost was billed in the form of software. Software pricing therefore is based on variable costing and India manufacturing was functioning as low entity. The answer to the question above is yes. Q.18. Please explain whether there was any agreement for the purpose of limited risk contract manufacturing by M/s NIPL with Nokia OYJ? Ans. The risk profile of Nokia India manufacturing can be understood on the Global Transfer Pricing Policy. It is clearly stated in the policy that manufacturing functions will be compensated on cost plus basis and all the risks in business are being assumed by Nokia Corporation. To the best of my understanding and memory, I have not seen any contract between Nokia Corp. and NIPL for contract manufacturing. Q. 23. What is the role of F&C in NIPL? Ans: NIPL F&C is responsible for three primary functions. 1) Sales Controllership including pricing of products in India, 2) Investment Controller, 3) ARC (Accounting, Reporting and Compliance). F&C team in ....
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....mited (NIPL)? Ans: The manufacturing process consists of the following steps, 1. First of all, the printed circuit boards are imported from china/taiwan. 2. These are loaded to magazine, that is, screen impression for soldering purposes. 3. Then it will go through the process of SMT (surface mount technology) wherein, the capacitors, ICs, resistors, shield, light protective caps etc are placed. 4. After this process, the component is placed at automated 'optic inspection for position and quality testing. 5. After this process, they same will be passed through final heat shield connection and protective cap through reflow oven/heater. 6. After above process is over, on the said component, the dome sheet is placed 7. Next, ACF-(assembling the LCD to the board) is done. Up to this, the process is called as Module. After the module, in the process of Panel Flash, the core software is downloaded from the server, located in the factory, to the Chip. This panel flash is the heart of the Mobile Phone. The Product Serial Number .(PSN) is assigned during the Panel Flash. 8. Subsequently, light guide, protective shield, D-Cover, Connector, Mic, Speaker are placed. 9. Then, Final....
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....ware is being incorporated into each mobile handset. With regard to the payment for the software, I don't know the basis, quantum and nature of these payments. 15.3. Next statement of V. Sembian recorded by the DDIT, Chennai u/s 131 on 7-2-2013, is contained at pages 702-708 of the PB. Relevant questions and answers thereto are reproduced below: 2. Please identify yourself Ans: I am V. Sembian 5/0. M. Venkatesan residing at CF1, Casa XS Apartrnent, Manapakkam Road, Manapakkam. I am the Product and process engineering manager of Chennai plant of M/s Nokia India Private Limited. I am working in NIPL since-August 2005 . 3. Product and process engineering Manager, Chennai plant of M/s Nokia India Private Limited (NIPL), what are the various activities that you look after? Ans: My role is ensuring the overall engineering capability of the factory which involves new product launch support, maintenance engineering, industrial engineering support and. equipment installation. 4. Please explain the manufacturing/assembling process of the mobile phones manufactured in the Chennai plant of M/s Nokia India Private Limited (NIPL)? Ans: The manufacturing process consists of the followi....
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.... factory into the chip. The product Serial number is generated at this stage. 2. The Second stage is the alignment testing stage where the software aligns the radio frequency of the mobile handsets. 3. The Third Phase is called as the final user interface wherein, the software checks the functionality of the mobile handsets. 4. The fourth and final Phase is called the Labeling of the Mobile Handsets, wherein, the customer settings are downloaded in the Mobile Handsets and the IMEI number is also generated. 6. Please explain, where from these softwares, which are used in, the Mobile handsets are obtained and how are they stored and finally into the Mobile Handsets? And also, explain how are they paid for? Ans: These software are designed and developed at various R& D Sites of Nokia Corporation. Then, these softwares are stored at the global server of Nokia Corporation located in Finland. As explained earlier, for each model, the software is downloaded from the global server to the local server located in the Chennai factory and stored therein. In turn, each time a mobile handset is being manufactured; the software is being incorporated into each mobile handset. With regard to t....
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....uality testing. 5. After this process, they same will be passed through final heat shield connection and protective cap through reflow oven/heater. 6. After above process is over, on the said component, the dome sheet is placed 7. Next, ACF-(assembling the LCD to the board) is done. Up to this, the process is called as Module. After the module, in the process of Panel Flash, the core software is downloaded from the server, located in the factory, to the Chip. This panel flash is the heart of the Mobile Phone. The Product Serial Number .(PSN) is assigned during the Panel Flash. 8. Subsequently, light guide, protective shield, D-Cover, Connector, Mic, Speaker are placed. 9. Then, Final User Interface tests are carried out. At this Stage, the semi finished product is called as the Engine. 10. Now this engine is flashed with label software, where the customer settings are loaded in the Mobile Phone. 11. The final assembly tool mechanics, which is Key Mat, A-Cover and B-Cover, are placed. 6. What are the software that are used in the manufacturing of the Mobile phones that are made out of Chennai and at what stages, the software are used? Ans: The mobile phones that are manufac....
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...., West Woods, Kuntrathur Road, Mathanandapuram, Porur. I am, the supply operations manager of Chennai plant of fv1/s Nokia India Private Limited, I am working since March 2011. 3. As supply operation Manager, Chennai plant of M/s Nokia India Private Limited (NIPL), what are the various activities that you look after? Ans: I am responsible for producing phones as per order book and production plan. 4. Explain about the process of getting order book and how do you plan your production? Ans: Order book is a consolidation of need, from customers and channel partners (distributors). Based on the order book, the production plan is prepared. 5. Please explain the manufacturing/assembling process of the mobile phones manufactured in the Chennai plant of M/s Nokia India Private Limited (NIPL)? Ans: The manufacturing process consists-of the following steps, 1. First of all, the printed circuit boards are imported from china/taiwan. 2. These are loaded to magazine, that is, screen impression for soldering purposes. 3. Then it will go through the process of SMT (surface mount technology) wherein, the capacitors, ICs, resistors, shield, light protective caps etc are placed. 4. After t....
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....and final Phase is called the Labeling of the Mobile Handsets, wherein, the customer settings are downloaded in the Mobile Handsets and the IMEI number is also generated. 7. Please explain, where from these softwares, which are used in, the Mobile handsets are obtained and how are they stored and finally into the Mobile Handsets? And also, explain how are they paid for? Ans: These software are designed and developed at various R& D Sites of Nokia Corporation. Then, these softwares are stored at the global server of Nokia Corporation located in Finland. As explained earlier, for each model, the software is downloaded from the global server to the local server located in the Chennai factory and stored therein. In turn, each time a mobile handset is being manufactured; the software is being incorporated into each mobile handset. With regard to the payment for the software, I don't know the basis, quantum and nature of these payments. 15.6. Next statement of K.S. Narayanmurthy recorded by the DDIT, Chennai u/s 131 of the Act on 7-2-2013, is contained at pages 681-685 of the PB. Relevant questions and answers thereto are reproduced below: 2. Please identify yourself Ans: I am K....
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....ed through final heat shield connection and protective cap through reflow oven/heater. 6. After above process is over, on the said component, the dome sheet is placed 7. Next, ACF-(assembling the LCD to the board) is done. Up to this, the process is called as Module. After the module, in the process of Panel Flash, the core software is downloaded from the server, located in the factory, to the Chip. This panel flash is the heart of the Mobile Phone. The Product Serial Number .(PSN) is assigned during the Panel Flash. 8. Subsequently, light guide, protective shield, D-Cover, Connector, Mic, Speaker are placed. 9. Then, Final User Interface tests are carried out. At this Stage, the semi finished product is called as the Engine. 10. Now this engine is flashed with label software, where the customer settings are loaded in the Mobile Phone. 11. The final assembly tool mechanics, which is Key Mat, A-Cover and B-Cover, are placed. 7. What are the software that are used in the manufacturing of the Mobile phones that are made out of Chennai and at what stages, the software are used? Ans: The mobile phones that are manufactured out of the Chennai Plant are based on Series-30 and Seri....
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....ability head' electro mechanics, in the team of mechanics solutions sourcing availability management in Chennai plant of M/s Nokia India Private Limited. I am working in NIPL since May 2006. 2. As availability head electro mechanics in Chennai plant of M/s Nokia India Private Limited (NIPL), what are the various activities that you look after? Ans: My role is to ensure availability of electro mechanics commodity used in the mobile handsets produced at Nokia factories all over the world, namely Chennai, Beijing in China, Dongguan in China, Masan in Korea and Manaus in Brazil." 15.8. Next statement of Vishal Mankhotia recorded by the DDIT, Chennai u/s 131 of the Act on 7-2-2013, is contained at pages 709-710 of the PB. Relevant questions and answers thereto are reproduced below: "2. Please identify yourself Ans: I am Vishal Mankotia S/o Lt. General PC Mankotia aged 41 resident at W-45, 7th Street, Anna Nagar, Chennai. I am the Manager planning and logistics in Chennai plant of M/s Nokia India Private Limited. I am working in NIPL since May 2011. 3. As manager planning and logistics in Chennai plant of M/s Nokia India Private Limited (NIPL), what are the various activities t....
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....ination by assessee. In this regard we find that all the statements were duly provided to assessee and during the proceedings before the AO, the assessee never asked for cross-examination. 17.1. It was only after filing of appeal that the assessee in detailed submissions dated 2-5-2013 before CIT(A)-29, contained at pages 221 to 260 of the PB, in para 2.1, requested for cross-examination. Thereafter vide letter dated 3-5-2013, the assessee again requested for cross-examination of such individuals, as was necessary. The assessee further stated as under: "It is, therefore, imperative as a basic prerequisite that in the interest of administration of justice and the principles of natural justice, the appellant should be allowed to present its case in a more effective manner before your goodself. In order to enable the appellant to present its case in an effective manner, the appellant should be provided: Adequate opportunity to file additional evidence in support of its claims, for which no opportunity was granted during the course of assessment proceedings and to explain various intricacies and complex legal issues involved in the matter. Opportunity to cross-examine the individua....
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.... replies filed by the DDIT, Internatiional Taxation, Circle 2(1) dated 23-5-2013. It is pertinent to note at this juncture that assessee did not ask for cross-examination of other employees in this letter and, therefore, did not pursue its claim regarding cross-examination of other employees. Further, the department has filed before us, copy of letter dated 2-5-2013, obtained from the file of ld. CIT(A) and pointed out that in para 2.1 ld. CIT(A) by his hand has written as under: "Please specify ...... ? 17.6. However, the assessee did not point out as to which employee it wanted to cross-examine. Ld. counsel pointed out that in the order-sheet notings ld. CIT(A) has not mentioned about this fact. In our opinion, considering the complexities of proceedings, these technical aspects have no relevance. Further, before us also the asessee was asked to specify the employees to whom they wanted to cross-examine and in response thereof, the assessee has filed the following letter: The Honourable Members Bench 'E" Income Tax Appellate Tribunal Loknayak Bhawan, Khan Market New Delhi Dear Sirs, Sub: Submission of names of persons the appellant wishes to crossexamine Re: Submis....
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.... We would like to submit that the appellant has always maintained that it be allowed to cross- examine such persons whose statements the income tax authorities are relying upon and hence, the present request is in consonance with our earlier requests. We would further humbly request the Bench to direct the Respondent to not rely on statements of any other witnesses (other than the 22 persons mentioned above) without first affording the appellant an opportunity to cross- examine them."" 17.7. In this letter also the assessee has not specified specific employees to whom it wanted to cross-examine. 18. We have gone through the proceedings from inception and find that authorities below have acted justly to assessee by providing statements of all employees, ex employees, CFL reports etc. Having regard to the nature of dispute, we are of the opinion that principles of natural justice have been complied with by affording fair hearing to assessee. The assessee has been imparted substantial justice on this count. In course of hearing Ld. Counsel fairly accepted that the witnesses were not hostile. This was so because they were the assessee's employees and were occupying the senior most p....