AI Drafter 
TaxTMI 
TaxTMI 
2015 (5) TMI 820
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....e and Nokia CDMA R&D Unit Mumbai. 2.1. Survey 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 operation....
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....he Act and thus whether NIPL can be held to be an "assessee in default" for nondeduction of tax thereon as per 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....
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.... he relied on the decision of Hon'ble supreme Court in the case of CIT Vs. S. Kadar Khan Son (supra). 5.5. Ld. Sr. Counsel further submitted 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, DD....
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....lied on the decision of Hon'ble Kerala High Court in the case of Paul Mathews & Sons v. CIT 263 ITR 101. 5.12. Ld. Sr. Counsel further submitted that 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 depriv....
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....)] dated 30 March 2011). Ld. Sr. Counsel submitted that observance of the principles of natural justice is an integral part of any quasi- judicial proceedings. Ld. 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....
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....e submitted that neither the persons whose statement are relied on by the AO/CIT(A) nor the additional statements of the persons filed by the department before the 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. ACI....
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....ssessee and its employees or its constituent partners is well recognized and this cannot be a basis to deny the Appellant the right to cross- examine its employees. 5.19. The asessee 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....
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....while hearing of appeal against an order of assessment, the ITAT cannot question the validity or otherwise of any administrative decision for conducting search, as same may be subject matter of 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....
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....can be utilized in assessment proceedings. He also relied on following decisions: - CIT Vs. Kamal & Co. 308 ITR 129 (Raj.); - Smt. Kusum Lata Singhal v. CIT 185 ITR 56 (SC); - Dr. Pratap Singh v. Director of 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 ....
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....s 131(1A). In this regard ld. Spl. Counsel pointed out that the inquiries u/s 131(1A) were necessitated because, as is evident from the statements recorded in course of survey, one person was referring name of other person who would 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 sta....
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....e assessment. On a perusal of the records of the CIT (Appeals) it was noticed that CIT (Appeals) asked the authorised persons appearing on behalf of the appellant to specify whose cross-examination they would be seeking for. Copy of this 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 an....
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....sfer Pricing documentation, Software Supply Agreement dated 01.01.2006 and R&O sub-contract agreement between M/s. Nokia Corporation, Finland and M/s. Nokia India Ltd, emails and Statements that the payments for various intellectual property rights 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 corr....
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....rior motive. It is well settled that appellate proceedings before first appellate authority constitutes continuation of the assessment proceedings as has been so held by Hon'ble Apex Court in the case of CIT vs Vimlaben Vadilal Mehta reported in (1984) 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. U....
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.... been challenged by the assessee or proved as not correct by submitting other evidence. Ld. Spl. Counsel referred to the order passed u/s 201 and pointed out that in "The Fact Matrix" considered in para 3.1 at page 38 of his order along with his finding in para 3.2.3 at page 47, 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....
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.... of survey proceedings. 7.2. Be that as it may, this being purely legal issue, we grant leave to assessee to raise this issue under Rule 11 of the ITAT Rules. Accordingly, we reject this objection raised by ld. Spl. Counsel. 7.3. The second objection raised by ld. Spl. Counsel is that Tribunal 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 Hig....
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....ies cannot be equated with the power of survey, because search can be carried out only if the specific authorities mentioned u/s 132 have information in their possession, on the basis of which they have reason to believe that if a person who is required to do certain acts as contemplated under clauses (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 assess....
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....he approval of the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General or the Director General or the Principal Commissioner or the Commissioner or the Principal Director or the Director therefore, as the case may be,]] (ii) make an inventory of any cash, stock or other valuable article 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 'pr....
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....32 of the said Act - perform their functions relating thereto in respect of the territorial areas or whole of India; (b) directs (hat the Directors specified in column (2) of the Schedule hereto annexed shall exercise their powers vested ill them under all other provisions of the said Act (other than section 132) and perform their functions relating 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 car....
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....ect there was an absolute non-cooperation as mentioned below:- i. For any information called for, the employees kept on saying that the information was not available with them and he / she was not responsible/ authorized to deal with matters relating to taxation. ii. No books of accounts were found maintained in physical form at both the premises. When questioned, it was stated 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....
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....ed that the employees co-operated to the extent possible, qualifying the ,degree of co-operation and thereby admitting that it was not full co-operation." 7.16. Therefore, the DDIT, Chennai has clearly demonstrated that there was non-cooperation of employees in furnishing the information and, therefore, u/s 133A(6), DDIT, Chennai had powers to record statements u/s 131. Even otherwise u/s 131(1A), the 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 b....
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....u/s 201/201(1A) were completed within 41 days and secondly on the ground that assessee had not been offered any opportunity to cross-examine the employees whose statements had been relied upon by AO for arriving at the conclusion that the impugned payments made by NIPL to Nokia Corporation were on account of royalty payments. The revenue's main contention on this count is that assessee was provided with all the statements 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 ....
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....ed. Diplock J. in the case of R.V. Deputy Industrial Injuries Commissioner, ex p. Moore (1965) 1 Q.B. 456, summarized the Commissioner's obligations in conducting a hearing as follows: "The deputy Commissioner is required (a) to consider such 'evidence' relevant to the question to be decided as any person entitled to be represented wishes to put before him; (b) to inform every person represented of any 'evidence' which '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....
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....s of natural justice." 86. In the case of V.K. Batcha Mohideen v. Joint Commercial Tax Officer [1971] 28 STC 450 (Mad.) the Court held : "The principles of natural justice have a very wide and extensive field for action. They enfold within their net the activities of the revenue in problems of taxation as well. They are not circumscribed to civil actions, since their arms can extend even to correct errors committed by taxing authorities in 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 n....
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....he quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National interest." 90. In the case of Kishanlal Agarwalla (supra). The Court held : "Ordinarily the principle of natural justice is that no man shall be a Judge in his own cause and that no man should be condemned unheard. This letter doctrine is known as audi alteram partem. It is on this principle that natural justice ensures that both 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 agains....
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.... arising therefrom. In our opinion, the High Court was right in holding that the burden of proof had shifted on to the appellant after the Custom Authorities had informed appellant of the results of the enquiries and investigations. 93. In the case of Tulsiram Patel (supra). The Apex Court has held that: "So far as the 'audi alteram partm' rule is concerned, both in England and in India, it is well-established that where a right to a prior notice and an opportunity to be heard 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. Da....
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....y clear to any judge, just as a beautiful woman is always a bit of mystery to her lover. Were it otherwise each would lose part of her charm. But the wise judge, like the wise lover, will be the master of his true love, although he may not understand her completely and though she is sometimes too difficult for him." - Trial Judge (at page 27) 96. The appellant's basic contention is that the statement of witnesses and materials which are relied upon by the Assessing Officer in the assessment 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 ....
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....ssessee clearly constituted infraction of the right conferred on the assessee by the second part of the proviso and that vitiated the orders of assessment made against the assessee." 98. It is pertinent to note that in the case of M.K. Thomas (supra), it was held that the decision in K.T. Shaduli Grocery Dealer's case (supra), cannot be understood as recognising a right of cross-examination as an invariable attribute of the requirements of reasonable opportunity. The Apex Court has stated the rule with 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 ar....
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....ly engaged the attention of thoughtful mind', says Allen, than the problem of the natural sense of justice. We have carefully considered the profile of the subject in the light of the latest developments. Principles of justice prohibit, determination without hearing. [Terminer sans over] Similarly, hearing without determination [Over sans Terminer] is also interdicted by the finer norms of justice. That all is required is impartial and fair hearing, and determination of disputes with utmost promptitude. The question whether 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 p....
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....o Rs. 26,20,51,000 added in the total income. 108. To support the addition on account of premium recourse was made to the Pricing and Marketing Policies, adopted by the assessee and other incidental details. Modus operandi was examined. It was found that- (i) Large amount was remitted by different unrelated and unconnected WB's, in the form of demand drafts, in fictitious names to Bombay, Calcutta, Delhi, etc., and these demand drafts were encashed either through bank account standing in the same name as that of the payees or else 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 Fi....
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....r meeting the expenditure, viz., advertisement, donation, etc. Some amount was reintroduced in the assessee's account by means of havala entries and reflected as commission and trading income. 110. From the aforesaid discussion, it is clear, that addition was not made merely on the basis of findings given apropos the secret bank accounts, disbursement made out of such account's or on the strength of havala entries, by which the bogus commission and trading income said to have been reintroduced in the books of the assessee. These aspects are only secondary, subordinate 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....
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....g Agreement dated 01-04-2001 2. R&D Sub-contracting Agreement dated 01-09-2003. 3. Service Agreement dated 01-01-2006 4. Service Agreement dated November, 2010 5. Minutes of meeting of the Board of Directors, September 2005, September 2007, December 2007, March 2008 and 6. Note on Sponsorships Service Agreement April 2009. Ld. Spl. Counsel further pointed out that there is no objection to the documents contained at sl. Nos. 8 & 10 which are as under: 8. All the E-mails of Ms. Arja Bjorklund with Anssi found at the time of survey and emails of other employees. 10. Software 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 t....
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....-observance of principles of natural justice then it is for the person so complaining to demonstrate the same and show the prejudice caused to him. Mere bald assertion of non-observance of the principles of natural justice is of no consequence. 13.1. In course of survey it was found that assessee had made payments to Nokia Corporation for software required to be installed in the mobile handsets during manufacturing. It was found that the accounts of assessee were maintained in the SAP erp system. The main server and the administrative rights of this system were located at Finland. The employees of NIPL were given user 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 paymen....
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....she could not provide any convincing reply. Therefore, the statement of CFO was recorded on oath by AO. The AO has observed that veracity and genuineness of this software supply agreement was doubtful. However, AO elaborately examined the agreement after it was produced before him post survey. At present we are not going into the details of this software supply agreement and are only referring to the same to demonstrate the background in which the statement of Ms. Acha Bjorklund CFO is to be considered. Therefore, AO's findings are primarily based on agreement and not on CFO's statement which was used only to corroborate his 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 reg....
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....t) is used for the activities of the parent company Nokia OYJ, Finland? Ans. Though Nokia India Pvt. Ltd., is wholly owned subsidy of M/s. Nokia OYJ, Rnland, I am not aware of any activities being carried out on behalf of M/s.Nokia OYJ, Finland by M/s.Nokia India Pvt. Ltd., Chennai. Q.10 Whether any document I paper pertaining to Nokia OYJ, Finland is maintained at Nokia India Private Limited, Chennai plant? Ans. I am not aware of any document pertaining to M/s.Nokia OYJ are maintained at Nokia India Private Limited, Chennai. 14.3. On 18-1-2013 contained at page 693-697 of PB- again statement of Shri Prakash Katama has been recorded on oath. 15.The next 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 F....
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....happened when Nokia group started making losses and Symbian was no longer cost competitive. Q16: From when this started, who took decisions in this regrd, whether there was any written agreement for not charging any cost for delivering software to NIPL any more? Ans: It started sometimes in 2012. Who took decisions, I don't know. People at Nokia Corp. might be knowing it. I have no knowledge of any such agreements. Q17: Who in NIPL might be knowing about any such agreement? Was there any other form of understanding between Nokia Corp. and NIPL? Ans: It is not in my knowledge. Q.18: Please state what are the agreements that have been made between Nokia Corp. and NIPL. Pl. produce copies of 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....
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....the software delivery process from mid of 2009 was supply of software keys along with the software. Probably Mrs. sari is referring this change when she mentions user license key. About the comment on IPR in my understanding, the rights and obligations should be seen in the contractual relationship between M/s NIPL and Nokia Corp. Q.17. Which you meant to say software price is a balancing figure in order to arrive the required margin of profit as per the global Transfer Pricing policy of Nokia OYJ? Ans. The software in discussion is Nokia Proprietary software. So what I was informed is that there is no way to appropriately value a "proprietary software" as there are no valuation methods or bench marks. In such a scenario, 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....
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....the existing model or the introduction of new model is communicated to me through PDM via ECN. As far as software is concerned, it IS directly downloaded into the local IMES Server located in the Chennai factory. I along with my team access it and check it for the presence of any functional irregularities/defects. In case, there are any, we get them rectified by the global R&D team by highlighting the same. In a", my role as far as software is concerned to make it ready to be used in the Chennai factory production. Once this is over, the software is ready for flashing into the handsets by the production team. 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 this process, the c....
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.... 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. 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. 15.3. 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.....
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....stages, the software are used? Ans: The mobile phones that are manufactured out of the Chennai Plant are based on Series-30 and Series-40 Platforms. For any Mobile Phone that is launched, the software is designed and developed by Nokia R&D. This software is stored in the global server in Finland. When a new model of mobile phone is launched in the Chennai factory, the basic software is downloaded from the global server and stored in the local server in the Chennai factory. Each time a mobile phone is being manufactured; the software is flashed and tested in the handset at four different stages during the Manufacturing Process, pulling the software from the local server located in the Chennai factory. 1. The first phase of software is the Panel Flash, where the core software is downloaded from the local server located in the 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....
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....ghting the same. In all, my team role as far as software is concerned to make it ready to be used in the Chennai factory production. Once this is over, the software is ready for flashing into the handsets by the production team. 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 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....
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.... 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. 15.5. Next statement of Subbaiah Chokalingam 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 Subbaiah Chokkalingam, sto Shri M. Chokkalingam, aged 41 residing at C-1S, Shanti Niketan, 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 v....
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....d by Nokia R&D. This software is stored in the global server in Finland. When a new model of mobile phone is launched in the Chennai factory, the basic software is downloaded from the global server and stored in the local server in the Chennai factory. Each time a mobile phone is being manufactured; the software is flashed and tested in the handset at four different stages during the Manufacturing Process, pulling the software from the local server located in the Chennai factory. 1. The first phase of software is the Panel Flash, where the core software is downloaded from the local server located in the 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. 7. Please explain, where from these softwares, which are used i....
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.... of any functional irregularities/defects. In case, there are any, he gets them rectified by the global R&D team by highlighting the same. In all, his role as far as ware is concerned to make it ready to be used in the Chennai factory production. Once this is over, the software is ready for flashing into the handsets by the production team. 6. Please explain the manufacturing/assembling process of the mobile phones manufactured in the Chennai plant of M/s Nokia India Private limited (NIPL)? 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....
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....? 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. 15.7. Next statement of Lasitha P. Ashokan recorded by the DDIT, Chennai u/s 131 of the Act on 7-2-2013, is contained at pages 686-687 of the PB. Relevant questions and answers thereto are reproduced below: "2. Please identify yourself Ans: I am Lasitha P Ashokan, wlo Sarath Mohan, aged 38 residing at D- - Southern shelters, 2/137, Mount Poonamallee Road, kattupakkam, Chennai-56 . I am the availability 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 ....
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....th any material to prove otherwise. Further, the employees only stated about the manufacturing process and about their role in the same and these statements have been utilized as a corroborative evidence by the AO in arriving at his conclusion. Therefore, here it is not a case where only on the basis of statements of employees any conclusion has been drawn by the AO. He has taken support from these statements for arriving at his conclusion on the basis of agreements, E-mails, invoices, technical expert's report etc. . It is well settled law that before the plea of cross examination is advanced, it has to be shown that the party seeking cross examination is an adversely affected party by the evidence (in present case statements of employees) placed on record. In the present case the contents of statements have not at all been disputed by assessee and, therefore, it cannot be said that assessee is an adversely affected party by these statements. 17. Now coming to the issue regarding timing for raising the plea regarding cross-examination 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....
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....he cross-examination of Mr. Shastri and after his cross-examination only, the assessee clearly stated that it would be in a position to take a call for crossexamination of other persons. 17.4. Vide letter dated 17-5-2013 ( page 271 to 428 of the PB), the assessee again requested for cross-examination as requested in letters dated 2-3-2013, 3-5-2013, 6-5-2013 and 8-5-2013. 17.5. On 20-5-2013 Mr. Shastri was cross-examined by the assessee. On 21-5-2013 again Mr. Shastri was re-examined by the assessee. On 23-5-2013 the assessee made interim submissions before ld. CIT(A) and again filed detailed reply, inter alia, submitting that final response could be submitted after cross-examining Mr. Shastri. However, it is to be noted that as per the notings made by ld. CIT(A) in his order, Mr. Shastri was cross-examioned on 20 & 21-5-2013. Thereafter, assessee filed a detailed reply on 24-5-2013 in response to queries raised by ld. CIT(A) and further submissions based on cross-examination and re-examination of Mr. Shastri and also response to the supplementary replies filed by the DDIT, Internatiional Taxation, Circle 2(1) dated 23-5-2013. It is pertinent to note at this juncture that ass....
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.... -' 8. Subbiah Chokhalingam 9. Lasitha P. Ashokan 10. Vishal Mankhotia The persons appearing in Serial No. 3-10 have commented upon he technical process of manufacturing phones whereas Mr. Jitendra Grover has commented upon the pricing of the software purchased by the appellant and Ms. Arja Bjorklund has commented upon the agreement for purchase of such software. The respondent during the course of hearing before this Tribunal has further filed the statements of the following persons with the intention of relying upon them: 11. P. Ravindran 12. Santosh Kulkarni 13. Gerald Lawrence 14. N. Ganesh 15. Usha Rajeev 16. Anupam Dhawan 17. Avijit Mukerji 18. Tarun Arora 19.D. Indragiri Raj Kumar 20. Rahul Sood 21.P. Balaji 22. R. Ramachandran While the Respondent has maintained that all statements have been relied upon, we wish to limit our cross-examination to such witnesses whose statements have been specifically relied upon or will be relied upon. In this regard, we would request the Bench to grant us an opportunity to cross-examine any or all of the aforementioned 22 persons. We would like to submit that the appellant has ....
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....ual survey in relation to the two mobile handsets clearly showing the IMEI, the PSN and Software ID numbers were mentioned. There were no follow-up questions in this regard and the fact that the Ld. DDIT, Chennai was shown these facts and details after they were downloaded from the database is not borne out by the statement of Mr. V. Sembian. Facts and details like these could emerge from the crossexamination and would go on to support the Appellant's case. It is submitted that Ld. DDIT, Chennai grilled the witnesses on the same set of questions and got pre meditated answers. The questions were one-sided and leading, and were designed to prove non-existence only of software keys in the phone. Therefore, he submitted that complete facts like the ones mentioned above have not been brought out by the statements recorded by Ld. DDIT, Chennai and they can only be brought out by cross-examining the witnesses. As far as submissions with reference to CFSL report are concerned, Mr. Shastri was cross examined by assessee before ld. CIT(A) and, therefore, the objections qua CFSL report cannot be sustained. However, a close examination of ld. Sr. Counsel's submission makes it very clear th....