TaxTMI 
TaxTMI 
2017 (3) TMI 1469
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....the Ld. AO. 02. When the appeal was called for hearing on 15/10/2016 the Ld. authorized representative of the appellant submitted a letter dated 15/10/2016 requesting for adjournment of hearing. It was submitted that appellant along with its holding company Cairn Energy PLC is currently engaged in the arbitration under article 9 of the agreement between government of the United Kingdom of Great Britain and Northern Ireland and the government of the Republic of India for the promotion and protection of the investment and proceedings are in progress. Therefore, it was argued that the issue is already sub-judice before the International Court of Justice. Therefore, it was argued that considering the importance of the matter under appeal and its significant impact, appellant must necessarily consult its international counsel and due to the short extension previously given it is not been possible to liaise between Indian and international counsel in the time allowed. Therefore, the requests said that appeal might be adjourned until January 2017. 03. This adjournment application was vehemently objected to by the Ld. departmental representative stating that that the st....
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.... about the disposal of the application of the assessee for arbitration proceedings, which is pending since 11/03/2014, is not proper. Hence, we directed both the parties to argue the matter before us and we have ensured that enough opportunity would be available to both the parties for putting their case forward. Consequently, on 15/11/2016, the matter was partly heard and the revenue was directed to produce the original records and hearing was adjourned to 18/11/2016. Further, on 18/11/2016, hearing was further adjourned to 14/12/2016. On 14/12/2016, there was a further adjournment request, which was acceded to, and the matter was finally adjourned to 19/12/2016. On 19/12/2016, matter was argued by both the parties and heard. 05. In this appeal following grounds of appeal are raised by appellant:- Grounds of Appeal Without prejudice to ongoing international arbitration proceedings involving Cairn Energy PLC, Cairn UK Holdings Limited and the Government of India and all its claims, rights and remedies therein, Cairn UK Holdings Limited (hereinafter referred to as the "Appellant") craves leave to prefer appeal against the order dated 25 January 2016 iss....
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....are of no consequence in determining the chargeability of the transaction to tax in India. 3.5. The AO has erred in and the DRP has further erred in not appreciating the fact that the transaction which gives rise to the assessment order at dispute is purely an internal group restructuring, prior to the listing of CIL's shares on stock exchanges in India. It is submitted that the above referenced reorganisation resulted in new subsidiaries in the corporate group but did not generate any real income or crystallise any new value and is, therefore, not chargeable to tax in India. 3.6. The AO has erred in and the DRP has further erred in not considering the various decisions of the Hon'ble Supreme Court of India on the computation of real income and in not appreciating the contention of the Appellant that no real income or gain has accrued to the Appellant on account of the transfer of shares to CIL and a mere accounting entry cannot be income, unless real income has actually been earned. Clearly, there was no commercial transaction with any outside third party and no gain \sas derived from any outside third party. Accordingly, there was no real income or gai....
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....ch disregards the separate entity approach in order to determine the situs of shares in a foreign company based on the location of the underlying assets. 3.11. Based on the facts and in the circumstances of this case and on the premise of the grounds mentioned above, the order under Section 147 of the Act dated 25th January 2016, levying income-tax on alleged capital gains amounting to Rs. 24,504 Crore in the hands of the Appellant, is patently illegal and thus liable to be quashed. 4. Erroneous findings of the AO 4.1. The AO has erred in concluding that "the money was remitted out of the country bypassing or circumventing all procedural requirements". The AO failed to appreciate that all regulatory requirements were complied with, and that it was these very requirements that dictated the structuring of the transaction. The AO erred in concluding that the structuring of the transaction was to avoid paying tax. 4.2. The AO has erred in concluding that the final tranche of transfer of CIHL shares for cash was not disclosed in the application to the Foreign Investment Promotion Board, nor was any approval taken for this. The AO failed to appreciate that t....
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....s merely involves interpretation of the provisions of the Income-tax Act, 1961 ('the Act') as furtherance or advancement of ground no (2) of the memorandum of appeal (Pg. No. 4) which the Hon'ble Tribunal is otherwise competent to do, in view of the principles of the Hon'ble Supreme Court in the case of National Thermal Power Corporation Limited 229 ITR 383 (SC). Further, the Appellant believes that the existing grounds are wide enough to cover these grounds, however, as a matter of good order it is filing these as additional grounds. Below Ground No. 2.2, the following grounds are added: "2.3 On the facts and in the circumstances of the case, the learned AO has erred in completing reassessment proceedings under section 147 / 148 of the Act based on the incorrect approval obtained under section 151 (2) of the Act; 2.4 On the facts and in the circumstances of the case, the learned AO has erred in completing reassessment proceedings under section 147 / 148 of the Act based on the issue of an invalid notice under section 143(2) of the Act which is the primary requirement for initiation of any assessment proceedings;" Below Ground....
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....ot submitted details as required according to the earlier questionnaire, further letter dated 19/11/2014 was issued against which assessee further submitted adjournment applications on these occasions for additional time for 4 weeks. As the information was not forthcoming from the assessee. The Ld. assessing officer exercised powers under section 133 (6) of the act and asked details from Cairn India Limited , purchaser of the shares of Cairn India Holdings Limited. 08. The facts of the impugned transaction, undisputedly are noted by the Ld. assessing officer in para No. 7 of his order as under:- "7. Analysis of the transaction of sale of shares of CIHL by Assessee (CUHL) to CIL. 7.1 Transfer of the Indian Assets from Cairn Energy Plc to CUHL Cairn UK Holdings Ltd. (CUHL in short) was incorporated on 26.06.2006 in the United Kingdom as a 100% subsidiary of Cairn Energy PLC (CEP). Cairn Energy PLC, a company incorporated in Scotland was holding various oil and gas assets in India through its direct/indirect foreign subsidiaries. In the year 1995, CEP acquired participating interest in the underlying Indian assets. On 30.06.2006, Cairn UK Holdin....
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....ts from CIHL to CIL On 15 September, 2006 Cairn UK Holdings Ltd entered into the Subscription and Share Purchase Agreement with Cairn India Limited and Cairn India Holdings Limited (both subsidiaries of Cairn UK Holdings Ltd) with Cairn Energy PLC as the Guarantor. The Subscription and Share Purchase Agreement provided for Cairn India Limited to acquire approximately 21.85% of share capital of Cairn India Holdings Limited in two tranches. Subsequently a new Share Purchase Deed was signed on 12.10.2006 and the entire share holding of Cairn India Holdings Ltd was acquired by Cairn India Ltd, from CUHL. By virtue of purchase of 100% shares of CIHL from CUHL, CIL acquired the entire Indian business of the group. CIL acquired (purchased) 25,12,24,744 shares of CIHL from CUHL for a total consideration of Rs. 26,681,87,10,140. This transaction was carried out in the following manner: Date Mode From Number of shares of CIHL Total Value (Rs.) 12 Oct 2006 Share Purchase Cairn UK Holdings Limited 4,14,93,659 50,37,39,87,924 22 Nov 2006 Share Purchase Cairn UK Holdings Limited 1,33,90,789 17,55,42,39,705 20 Dec 2006 Share Swap ....
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....pment activities in India. 7.2.4 Regarding taxation, the company in Schedule 6 to the Income Statement has stated that no tax has been provided in respect of the disposal of part of the company's investment in its subsidiary as the disposal is exempt from tax under Schedule 7AC of the Taxation of Chargeable Gains Act, 1992. 7.2.5 Financial Statement of Cairn UK Holdings Ltd (as on 31 Dec 2007) states that during the period an exceptional gain of $ 47.8 m has been recognized as part of the transaction between the company and Cairn India Ltd. in 2006. The gain represents additional consideration received from Cairn India Ltd. under the sale and purchase agreement dated 12 Oct 2006 whereby Cairn India Ltd acquired the entire share capital of Cairn India Holdings Ltd from the company. The additional consideration arose as a result of the price stabilization mechanism which required the issue by CIL of 130,85,041 new shares for total consideration of Rs. 209,36,06,560 on 08.02.2007. There was a consequent reduction in the Company's percentage holding of CIL from 69.5% to 69%. 7.2.6 As per the Financial statement of Cairn UK Holdings Ltd, no tax was payable ....
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....ubsidiaries of Your Company." 7.4.3 Facts noticed from the Balance Sheet of M/s Cairn India Ltd as at Dec. 31.01.2006 Balance Sheet of M/s Cairn India Ltd as at Dec, 31 2006 is as below: "(All amounts are in Indian Rupees ) As at Dec. 31, 2006 SOURCES OF FUNDS Shareholder's funds Share Capital 17,65,31,43,790 Stock options outstanding 34,50,58,813 Reserves and surplus 275,01,78,36,642 293,01,60,39,245 Loan Funds Unsecured Loans 20,47,07,562 Total 293,220,746,807 APPLICATION OF FUNDS Investments 26,681,87,10,140' The investments are qualified with the following remarks: "Long-term investments (at cost) - unquoted and non-trade 251224744 ordinary shares of GBP 1 each, in Cairn India Holdings Limited, subsidiary company (refer note 9(b) under schedule 13) 266818710140' 7.4.4 The Balance Sheet also mentions the following Related Party Transactions; Reimbursements of expenses incurred on behalf of the Company by: Cairn Energy Plc 2,50,00,200 Investment made during the period Cairn India Holdings Limit....
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....lopment and Site-restoration costs Cost of producing facilities (net) 235,37,76,000 Exploratory & development of wells in progress 1710,19,81,985 Net book value 1945,57,57,985 Good Will 25,411,51,34,287 7.4.7 Schedule 23:- NOTES TO ACCOUNTS of Cairn India Ltd as on 31.12.2006 "CIHL became the Company's subsidiary on December 20, 2006 through acquisition of effective 75.69% stake and wholly owned subsidiary on December 29, 2006. All other above mentioned subsidiaries are direct or indirect wholly owned subsidiaries of CIHL. Accordingly, these financial statements include the result of these subsidiaries for the period December 20, 2006 to December 31, 2006. (b) During the period, the Company has acquired 25,12,24,744 shares in Cairn India Holdings Limited for total purchase consideration of Rs. 26681,87,10,140 including Rs. 3276,30,69,551 for which purchase consideration was payable to Cairn UK Holdings Limited at December 31, 2006. The purchase consideration for this investment was finalized in February 2007 after considering the final amount payable on exercise of Green Shoe Option. The above transactions....
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....ive expenses of Cairn's head office in Edinburgh. This also includes taxation and interest expenses of the Group which cannot be allocated to an operating segment. In 2005 the operating segments were North Sea, South Asia and Head Office Costs, Comparative information has been restated to reflect the new operating segments. There is no overall financial impact of this change. The segment results for the year ended 31 December 2006 are as follows: Cairn India Limited Group Capricorn Energy Limited Group Other Group 2006 $000 $000 $000 $000 Revenue from sale of oil, gas and condensate 221956 63753 -- 285709 Tariff Income 595 --- --- 595 Total Revenue 222551 63753 --- 286304 Cost of sales 143751 78685 -- 222436 Gross Profit 78800 14.932 63868 Segmental Operating Profit/(Loss) 119725 143675 40620 64570 Cost of sales in the segmental Results above includes; Production costs 38585 18346 -- 56931 Unsuccessful exploration costs 56650 5368 -- 62018 Depletion....
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....rations were in India and even the functional currency of the appellant was in Indian rupees. He further referred to the red Herring prospectus issued by Cairn India Ltd at the time of initial public offer. He further referred to the valuation report obtained by Cairn India Ltd with respect to valuation of shares of Cairn India Holdings Ltd from and M Rothschild and Sons India private limited dated 18/09/2006 and 19/12/2006. Therefore according to him, all the assets of cairn India Holdings Ltd and its subsidiaries are located in India alone. He further referred to the various statements given by various employees of cairn India Ltd to support his contention. In para No. 8.6 of his order he further referred that none of the employees of the subsidiaries, which were subject to transfer, was employed outside India and, therefore the entire workforce of the PE of Cairn Group , was employed in India only. Therefore, he further held that workforce is also located in India. In para No. 8.8 of his order he referred to the certificate of incorporation of cairn India Holdings Ltd issued by Jersey financial services commission which shows that the company will act as a holding company ....
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.... only to tax those transactions wherein the shares of the foreign company have been sold resulting into transfer of management and control. Hence the above transaction is not chargeable to tax in India. 11. The Ld. AO dealt with the submission of the assessee in para No. 9 of his order. He first considered the legal structure of the assessee and chronology of events of acquisition of those shares, which resulted into transfer of control of Indian business from appellant to cairn India Ltd. He further referred to the subscription and shares purchase agreement dated 15/09/2006 and its amendment dated 05/10/2006 entered into between appellant , the seller of the shares, Cairn India Ltd, the purchaser of the shares, along with the guarantor of the transactions and the company, whose shares are transacted . He further analysed the share purchase deed dated 12/10/2006 and the red Herring prospectus of cairn India Ltd, through book building process. Therefore, he held that all these agreements analysed with chronological event of transactions, It resulted in changing the cairn group structure. He also demonstrated that the whole transaction is for transferring assets in India th....
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....ly attaching the shares to safeguard its interest. Regarding the claim of assessee that these transactions were already disclosed to revenue, he held that appellant has not filed any return of income for assessment year 2007 - 08 and the transactions were only disclosed in form No. 3 CEB before the Ld. transfer pricing officer for determination of arm's length price by the Indian associated enterprise i.e. cairn India Ltd. He therefore held that the issue there was only for determination of arm's length price in the hands of an Indian entity and not the chargeability of the capital gain tax in the hands of appellant, therefore there was no disclosure made by the assessee as no return of income was filed for the impugned assessment year. He further referred to the disclosure of the transaction made by the Indian entity in the Red Herring prospectus and approval obtained from Foreign Investment Promotion Board and held that there is no concept of 'group taxation' under the Indian Income Tax Act and Indian entity and the appellant are two different assesses. Hence, it cannot be said to be a disclosure at all. He further referred to the provisions of section 47 (iv) rws 47A of th....
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....rly mentions that all income accruing or arising whether directly or indirectly through the transfer of a capital asset situated in India is chargeable to tax as it is deemed to accrue or arise in India. The Ld. assessing officer further drew support from the memorandum of The Finance Act, 2012, explaining the position of the legislature. Therefore he rejected the contention of the cairn India Ltd that the amendments are prospective in nature and further held that Cairn India Ltd made payment of Rs. 26, 6818710140/- to the appellant for acquiring Indian assets through hundred percent shareholding of Cairn India Holdings Ltd and the resulting capital gains for taxable in the hands of the appellant. The Ld. assessing officer further drawing support from the decision of the Hon'ble Supreme Court in CIT versus Vatika Township private limited and held that the language of the expiration for an expression 5 which is been inserted w.r.e.f. 01/04/1962, amendments are clarificatory in nature and the operation is retrospective. 13. After holding that the capital gain arising in the hands of the appellant on account of sale of 100% shares of Cairn India holding Ltd which deriv....
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....DRP also rejected claim of the assessee that transactions were part of internal reorganization of the group and are revenue neutral. In nutshell, it rejected all the contentions of the assessee about the chargeability of capital gain in the hands of the assessee. On the aspect of the computation, it also rejected all the contentions including the decision referred before it of the Hon'ble Supreme Court in CIT versus Gillanders Arbuthnot & co 87 ITR 407 (SC) and upheld the computation of capital gains. Another objection raised before the Ld. Dispute Resolution Panel about the pendency of international arbitration and therefore requested to keep the proceedings pending was rejected. It was further objected before the Ld. Dispute Resolution Panel that interest under section 234A, 234B and 234C and 234D of the Income Tax Act is not chargeable because taxes required to be deducted by the Indian entity who paid such sum u/s 195 of the Act. Ld. DRP rejected the contention of the assessee with respect to interest under section 234A and 234C, whereas for the purpose of interest under section 234B Ld. AO is directed to reconsider the issue with clear-cut finding in his order. Therefore....
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....e placed reliance on the decision of the Hon'ble Supreme Court in the case of national thermal power Corporation limited to 29 ITR 383 (SC) to support its claim for admission of these additional grounds. 18. Ld. departmental representative, vehemently objected to the admission of additional ground and stated that as these grounds are not raised before the Ld. Dispute Resolution Panel or before the Ld. assessing officer the contentions are new and therefore same may not be admitted. 19. We have carefully considered the rival contentions. We are of the opinion that all these additional grounds of appeal raised by the assessee are legal in nature and no further facts are required to be investigated, therefore, in the interest of Justice these are admitted. 20. Now we come to the main grounds of appeal on which submission made by the assessee. Ground No. 1 of the appeal of the assessee is general in nature, arguing that the order passed by the Ld. assessing officer pursuant to the direction of the Ld. Dispute Resolution Panel is bad in law and facts and is liable to be set-aside on the ground set forth below. No specific argument were led on this gro....
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....in all likelihood; the said survey report had been received by the Ld. assessing officer after the issuance of the notice under section 148 of the Income Tax Act. Therefore, the action of the reopening of the assessment by the Ld. assessing officer has been attacked on several counts by the Ld. authorized representative in ground No. 2 of the appeal of the assessee. The assessee submitted on each of these issues as under:- 1. Approval required under Section 151(2) of the Act is not correctly provided Relevant Facts under consideration; 1.1. In the notice issued under Section 148 of the Act, there was no mention of the sanction / approval of the higher authorities as required under section 151(2) of the Act (refer page no. 7 of the Paper Book}. Further, on 25 July 2014, when copy of the recorded reasons for reopening of assessment was provided by the AO to the Appellant, the said reasons were neither signed nor was containing any sanction / approval of the higher authorities as contemplated under Section 151(2) of the Act (refer page no. 22 to 30 of the Paper Book). 1.2. During the course of DRP proceedings, vide submission dated 29 Sept....
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....ven by the Additional Director of Income-tax (International Taxation), Range -1, New Delhi (;the Addl DIT') on the last page of the recorded reasons, (refer page no. 31 of the Paper Book} Submissions 1.9. In this regard, the Appellant refers to the provisions of Section 151(2) of the Act, which reads as under - "151. . (1) ... (2) In a case other than a case falling under sub-section (I), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. (3) ... " ('Emphasis added) 1.10. Therefore, on perusal of Section 151(2) of the Act, it is evident that no notice shall be issued by an Assessing Officer who is below the rank of Joint Commissioner of Income-tax ("JCIT"), unless the JCIT is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of notice. 1.11. Hence, Section 151(2) of the Act gives administration powers only to JCIT for sanction / approval for issuance of the ....
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....ntioning of the same in the notice, as prescribed in ITNS - 34 in the case of the Appellant, makes it very clear that the AO, in substance, has failed to obtain the sanction from the designated authority under Section 151 of the Act before issuance of the notice under Section 148 of the Act. 1.19 In this regard, the Appellant relies on the following judicial precedents, wherein it has been held that absence of approval / sanction from JCIT for issue of notice under Section 148, as contemplated under Section 151(2) of the Act, renders reassessment invalid and therefore should be quashed: * Soyuz Industrial Resources Ltd. [2015] 58 taxmann.com 336 (Delhi) Hon'ble Jurisdictional High Court held as under - "8. The Revenue's argument seems plausible and even logical because the Commissioner or a Chief Commissioner is unarguably ranked higher in authority than a Joint Commissioner. Yet at the same time, this Court has to give effect to plain words of the statute which unambiguously states that the competent authority in such cases is the Joint Commissioner (and not the Chief Commissioner or the Principal Commissioner). The Revenue's submissions t....
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....h has been granted is not by the Additional Commissioner of Income Tax hut by the Commissioner of Income Tax. There is no statutory provision here under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner. In a similar situation the Delhi High Court in CIT v. SPL'S Siddhartha Ltd. [2012} 17 taxmann.com 138 held that powers which are conferred upon a particular authority have to be exercised by that authority and the satisfaction which the statute mandates of a distinct authority cannot be substituted by the satisfaction of another. We are in respectful agreement with the judgment of the Delhi High Court. " (Emphasis added) Further, the above ratio has also been followed in the following judicial precedents - * DSJ Communication Ltd. vs. DCIT [2014] 41 taxmann.com 151 (Bombay) * Gajinder Singh Chhabra vs. ITO [2014] 50taxmann.com 312 (Delhi - Trib.) * Sunint Investment & Tech....
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..... The relevant portion is reproduced as under: "We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years," (Emphasis added) 2.2 Based on the above, it is evident that notice under Section 143(2) of the Act for proceeding with the assessment can be issued by the AO only after disposal of objections raised by the Appellant. 2.3 In the instant case, since the notice under Section 143(2) of the Act had been issued before disposal ....
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....; (2) Every notice or other document to be issued, served or given for the purposes of this Act by any income-tax authority, shall be deemed to be authenticated if the name and office of a designated income-tax authority is printed, stamped or otherwise written thereon. (3) For the purposes of this section, a designated income-tax authority shall mean any income-tax authority authorised by the Board to issue, serve or give such notice or other document after authentication in the manner as provided in sub-section (2)." (Emphasis added) 3.5 Thus it is amply clear that any document issued by any Income-tax authority shall bear a signature of the designated authority. Further, Section 282A(2) of the Act provides for deemed authentication if the name and office of a designated Income-tax authority is printed, stamped or written there upon. 3.6 However, in the instant case, the reasons for reopening provided by the AO neither bears the signature of the AO nor is the name and office of the AO is printed, stamped or written thereupon (refer to Page 30 of the Paper Book). 3.7 Thus, in light of provisions of Section 282A, the reasons for reopening ....
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....AO of CIL has not passed on any such information to the AO of the Appellant during the regular assessment proceedings under section 143(2) of the Act. 4.2 The said principle is also supported by the case of CIT v Kelvinator of India Ltd [2010] 320 ITR 561 (SC) wherein Hon'ble Supreme Court confirmed the view of the Delhi High Court that "We also cannot accept submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded on analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (!) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said subsection (3) of section 143, a presumption can be raised that such an order has been passed on application of mind. It is well-known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of I he Indian Evidence Act the judicial and official acts have been regularly performed If it be held that an order which has be....
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....ed by the AO in the DAO, the investigation wing has forwarded a report of this survey along with certain documents to the Dy. Director of Income-tax, Circle 1(1), International Taxation, New Delhi. Relevant extract of the draft assessment order is as under: "A survey u/s 133A of the Income Tax Act, 2961 (hereinafter "the Act") was conducted at the office premises of Cairn India Ltd at 3rd and 4th Floor, Viper Plaza, Sun City, Sector-54, Gurgaon-122002, Haryana by the Directorate of Investigation, New Delhi on 15.01.2014. The report of the survey action -was received from Investigation wing which inter-alia contained following documents " 6.3 It is further submitted that the Hon'bie DRP in its order, on page no. 2, has also observed as under: "DRP has carefully considered the objections, and examined the draft assessment order as well as the contents of the Report of the Survey u/s 133A carried out by the Investigation Wing on 15.1.2014 and referenced by the Assessing Officer..... " 6.4 Further, the AO himself in his letter dated 3 December 2015 has observed that the case was reopened under Section 148 on the basis of the survey proceeding....
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....ts in question had been in the hands of the government in 2006. The reason that no tax was levied in 2006 was that the transactions in question were not taxable in 2006 - the only arguable basis for taxing them (which Appellant in any event rejects) arose in 2012 with the passage of the retrospective amendment. This has been confirmed by distinguished governmental commissions. 7. Rebuttal to the observations of the AO and DRP on assuming mere territorial jurisdiction In the final assessment order and DRP direction, the AO and DRP has observed that AO has valid jurisdiction over foreign companies on account of certain provisions of the Act and based on the returns of income filed by the Appellant for the subsequent years. However, such an observation of the AO only purports to confirm the territorial jurisdiction of the AO over foreign companies under the Act. The Appellant has been challenging-and is challenging - the validity of assumption of jurisdiction for initiating reassessment proceedings without satisfying the various condition precedent for the valid assumption of jurisdiction as enunciated by the Supreme Court in several decisions, 8. Rebutta....
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..... He referred to page No. 22-31 of the paper book which are the reasons recorded for the issue of notice under section 148 of the Income Tax Act and at page No. 31 the satisfaction of Additional Director of Income Tax (International Taxation), Range 1, New Delhi has been obtained. He therefore submitted that there is no power available with the Additional Director of income tax (international taxation) to record satisfaction that it is a fit case for the issue of such notice. He further referred to the provisions of section 2 (28C) and 2 (28D) of the Income Tax Act wherein the definition of 'Joint Commissioner' and 'joint director' is provided. Therefore he vehemently submitted that the power to give sanction under section 151 (2) is only available with the Joint Commissioner and not with Additional Director. He further submitted that these 2 authorities are quite different. He further referred to the decision of the Hon'ble Delhi High Court in case of CIT versus Pawan Kumar Garg [2009] 178 Taxman 491 (Delhi)/ [2011] 334 ITR 240 (Delhi)/ [2009] 222 CTR 36 (Delhi) wherein it has been held that manner in which expression 'Joint Director' has been used in section 132(1) requires....
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....e proposition canvassed by the AR that notices u/s 143(2)/142(1) cannot be issued till the disposal of objections made by the assessee in response to the communication of 'reasons to believe' -is an erroneous interpretation of the SC judgment in 'GKN Driveshafts' case. After issue of notice u/s 148 the AO cannot be expected to remain idle waiting for the assessee to seek reasons and then prefer objections at the last minute. It is also worth noting that the time available with the AO for passing draft assessment order was only up to 31.03.2015. Under the circumstances, and keeping in view that the assessee had not sought reasons for almost six months even after receiving the notice u/s 148 on 21.03.2014 the action on part of the AO to issue notices u/s 143(2) and 142(1) before 10.06.2014 cannot be faulted upon. * So far as the case of Premier Ltd v DCIT& Ors (WP No. 2340 of 2008) of Bombay HC is concerned, the facts of that case are completely at variance with the case in hand. In that case, the AO had issued notices u/s 148,143(2) and 142(1) altogether. It was in these circumstances that the High Court quashed notices issued u/s 143(2)/142(1) and directed....
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....tion of mind. The position is completely different here. Even though the assessment of CIL was made with full application of mind, income in the case of the assessee had escaped assessment because, among other aspects, the assessee had failed to file any return whatsoever till the notice u/s 148 was sent. 5) Regarding claim that Reopening is contrary to'Vodafone'Judgment * * Post Vodafone judgment, to remove doubts the Parliament clarified the law as it stood since 1962. Whether the Parliament of the Country was competent to do so, it is most humbly submitted, cannot be deliberated in this Hon'ble Tribunal. * At the time of issue of notice, the law was thus clear and the AO had clearly stated (order disposing of objections; page 36 - 47 of assessee's paper book) that the conditions laid down in section 9(l)(i) were satisfied and the capital gains accruing to the assessee from transfer of CIHL shares which derived all their value from the assets situated in India, was taxable in India. 6) Regarding issue on Survey Report * The insinuation, that while the notice u/s 148 was issued on 21.01.2014, the 'Survey Report&....
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....tional Taxation) Circle 1(2)(1), New Delhi over the assessee was never under challenge. * In any case, the challenge to the jurisdiction was made 72 days after the service of notice u/s 148, much after the 30 days bar placed in that regard u/s 124 of the Income Tax Act. Any challenge to the jurisdiction of the assessing officer at this stage deserves to be rejected. 25. The Ld. departmental representative for the purpose of the jurisdiction referred to the notification No. 250/2007 dated 28/09/2007 and submitted that the Directors of Income tax referred to in this notification to issue orders in writing empowered the Additional Drectors of the income tax of Joint Directors of income tax, what subordinate to them to exercise the powers to perform the function of Additional Commissioner of income tax or Joint Commissioner of income tax in respect of such territorial areas for of such person or class of person of such income or class of income or of such class of classes of the cases specified in the corresponding entries in that notification. He therefore submitted that Additional Directors of the income tax are equivalent to the Joint Commissioners of the income tax theref....
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....s amply clear that the word Joint Commissioner does not include the Additional Director of income tax. However, provisions of section 120 of the Income Tax Act define the jurisdiction of income tax authorities. According to that section all income tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on them or assigned to them by or under this act in accordance with such direction as the board may issue for the exercise of the powers and performance of the function by all or any of those authorities. It further provides that the direction of the board may authorise any other income tax authority to issue orders in writing for the exercise of the powers and performance of the function by all or any of the other income tax authorities what subordinate to it. According to those powers notification No. 250/2007 dated 28/09/2007 was issued by the Central board of direct taxes wherein it is provided as under:- "(b the Directors of Income-tax referred to in this notification to issue orders in writing empowering the Additional Directors of income-tax or Joint Directors of Income-tax, who are subordinate to them to exercise the....
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....e also took us to page No. 52 of the paper book where the notice under section 148 issued with respect to some other assessee of Cairn Group was annexed, wherein there is a specific mention that this notice is issued after obtaining the approval under section 151 of the Income Tax Act, 1961. He referred to the notice issued to the assessee, which is placed at page No. 7 of the paper book, where there is no such mention of such approval. Therefore, the contention of the Ld. authorized representative that this non-mentioning of the fact of obtaining necessary approval in the notice itself makes the notice invalid. We have carefully perused the rival contentions. In fact, format of the notice provided in ITNS - 34, is a non-statutory form, which does not find place in the income tax rules, or any other subsidiary rules relating to administration of the Income Tax Act. However, we fully agree with the contention of the Ld. authorized representative that the non-statutory format provided by the Central Board of Direct Taxes clearly provides that there has to be mention about the notice is being issued after obtaining the necessary satisfaction of the higher authorities prescribed ....
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....the Income Tax Act. We have carefully considered the rival contentions. The Hon'ble Supreme Court in case of GKN Driveshaft (India) Ltd versus Ito (2002) 125 Taxmann 963 (SC) has laid down the procedure in case of reassessment proceedings holding that , when notice under section 148 of the income tax is issued, the proper course of action for the noticee is to file return of Income and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of the reason that noticee is entitled to file objection to issuance of notice and the assessing officer is bound to dispose of the same by passing the speaking order before proceedings with assessment. In the present case, the notice under section 143 (2) was issued on 6th June 2014, whereas the assessee has obtained reasons for notice issued under section 148 of the act only on 10/06/2014, therefore, apparently there is no objections pending before the Ld. assessing officer to dispose before the issue of notice under section 143 (2) of the act. Furthermore, there is specific time limit applicable with respect to the issue of notice under section 143 (2)....
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....ed on such information to the Ld. assessing officer of the appellant during the regular assessment proceedings under section 143 (3)of the act. Against this, the Ld. departmental representative have argued that that though the information was available with the Ld. assessing officer of Cairn India Ltd, it reached the AO of the assessee much later. In any case it was submitted that law does allow action against any assessee within certain time frame in this case the action was taken within the prescribed time frame. The Ld. departmental representative also vehemently submitted that decision of the Hon'ble Supreme Court in the present case, do not apply at all. It was submitted that though the assessment of Cairn India Ltd was made with full application of mind income in the case of the assessee had escaped assessment because the assessee has failed to file any return whatsoever till the notice under section 148 of the Income Tax Act was issued. We have carefully considered the rival contentions and we reject the argument of the Ld. authorized representative of the assessee as well as the reliance upon the decision of the Hon'ble Supreme Court in case of CIT versus Kelvinator o....
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....ns recorded by the assessing officer for initiating reassessment proceedings. The Ld. assessing officer has referred section 9(1) (i) of the act and at page No. 7 of the reasons recorded. He has elaborately considered that provisions of that section are applicable in the present case. Further at page No. 8 it is also been mentioned that that S underlying assets of such shares are situated India which is transferred and capital gain thereon is chargeable to tax in India. He has categorically held that all the subsidiaries are doing business in India are having all the receipts in India and, therefore, the shares of Cairn India holding Ltd derived all its value from the assets located in India. He further held that the real effect of transfer of the shares of Cairn India holding Ltd will be the transfer of control of the assets of the subsidiaries in India. Therefore, this transfer of shares would indirectly result in transfer of assets situated In India. It situated in India, hence the condition laid down in section 9 (1) (i) of the Indian Income Tax Act are satisfied thereby making the capital gain taxable in India, as per the domestic tax law. The argument of the Ld. authori....
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....he additional ground No. 2.3 raised before us with respect to incorrect approval under section 151 (2) of the income tax has already been dealt with by us in earlier paragraphs of this order therefore ground No. 2.3 is rejected. i. On the additional ground raised by ground No. 2.4 regarding the invalidity of notice issued under section 143 (2) of the act, only argument raised before us is that before disposal of objections filed by the assessee such notice was issued. We have already dealt with this issue and hence this additional ground is also rejected. 28. In the result ground no 2 of the appeal of assessee is dismissed . 29. Ground No 3 & 4 of the appeal of the assessee are against chargeability of capital gain and computation of the same under the Income Tax Act 1961. 30. Ld AR submitted on this issue as under :- "1. Facts under consideration 1.1. Cairn Energy PLC ("CPLC") is a tax resident of United Kingdom under Article 4 of Double Taxation Avoidance Agreement between India and United Kingdom ("India - UK DTAA"). In the year 2006, the CPLC Group undertook an internal reorganisation ("internal reorganisation") to sim....
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....etween CPLC, CUHL, CIHL and Cairn India Limited ('CIL') (refer Page No. 75 to 168 of Paper Book) f) As a final part of internal reorganisation, CIL was incorporated in India on 21 August 2006 as a wholly owned subsidiary of CUHL. In accordance with Indian regulatory provisions, equity was injected into CIL by CUHL. Vide subscription and share purchase agreement dated 15 Sep 2006 and share purchase deed dated 12 Oct 2006 entered into by and among CPLQ CUHL, CIHL and CIL, the entire share capital of CIHL was transferred from CUHL to CIL; The consideration for this transfer was settled partly in cash and partly as shares in CIL. For this purpose, initially funds were infused in CIL on various dates by CUHL and from these funds, on the same day, CIL purchased some part of the share capital of CIHL from CUHL. 1.4. As a result, CIL, a subsidiary of CUHL, acquired 100 percent stake in CIHL from the Appellant. 1.5. With regard to the above transaction. Assessing Officer ('AO'), in the Draft Assessment Order ('DRO') dated 09 March 2015, alleged the gains arising from the sale of shares of CIHL by the CUHL to CIL are short term capital ga....
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....f the said retrospective amendment before the International Court of Justice pursuant to Article 9 of the Agreement between the Government of India and Government of United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments. Further, the Appellant also reserves its right to contest the validity of the above retrospective amendment before the appropriate forum in India. However, in the DRO and FAO and DRP Directions, it was observed by the AO and DRP, that the retrospective amendment is a good law. In view of the same, presuming that your Honors would be dealing with the said observations of the AO and DRP, in the subsequent paragraphs, the Appellant has provided its submissions against the observations of the AO and DRP on retrospective amendment. 2 -. During the course of the assessment, the learned AO has placed reliance on the submissions filed by CIL during the course of proceedings under section 201 of the Act, wherein it was submitted that the amendment of section 9(1 )(i) of the Act created new law and new obligations. It was submitted that the legislature though while amending the law has mentioned that the amendments are....
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....discussed before your Honors and winch needs evaluation is whether amendment to section 9( 1 )(i) of the Act with retrospective effect which has an impact of increasing tax liability on the Appellant is a good law. Further, reliance placed on the decision of Copal Research (supra) is completely irrelevant and out of the context. Learned AO has very conveniently cherry picked certain paragraphs from the decisions and quoted as per his convenience. The main issue before Hon'ble Delhi High Court was whether the transfer of 67 percent shares of Copal-Jersey to Moody UK is chargeable to tax in India. The said transfer of shares was having an effect of transfer of certain assets in India. The main issue dealt by the Hon'ble Delhi High Court in this case was interpretation of the word "substantially" occurring in Explanation 5 to section 9(1 )(i) of the Act. In the said interpretation. Hon'ble Delhi High Court just took note of the provisions of Explanation 5. Such an observation^ of Hon'ble Delhi High Court is presented by the AO in such a manner that Hon'ble Delhi High Court has stated that Explanation 5 is for removal of any doubts and hence applicab....
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....on. It may be an expression of a view point or sentiments which has no binding effect. It is also well-settled that the statements which are not part of the ratio decidendi constitute obiter dicta and are not authoritative. The same is various judicial precedents such as KEC International Ltd. v. Ad. CIT [2012] 20 taxmann.com 229 (Mumbai), CIT v SAE Head Office Monthly Paid Employees Welfare Trust [2004] 141 Taxman 364 (Delhi), Saurabh Bansal v ITO [2010] 41 SOT 157 (AHD.), Roshanlal S. Jain (AOP) v. Dy. CIT [2009] 309 ITR 1741 (Guj.), Arvind Boards & Papers Products Ltd. v. CIT [1982] 137 ITR 6352 (Guj.), etc. The charge in respect of the surcharge, having been created for the first time by the insertion of the proviso to Section 113, in clearly a substantive provision and hence is to be construed prospective in operation. The amendment neither purports to be merely clarificatory nor is there any material to suggest that it was intended by Parliament. Furthermore, an amendment made to a taxing statute can be said to be intended to remove 'hardships' only of the assessee, not of the Department. On the contrary, imposing a retrospective levy on the assessee would h....
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....first time - the only thing done in the present case is that a firm is by fiction of law continued as such for certain purposes of assessment even after its dissolution. * There is no withdrawal of any right which has become a vested statutory right which deprives an assessee of anything in the present case. The above observation clearly indicates that the only issue involved was the taxability of income in the hands of the firm after dissolution. The said amendment was not creating any additional tax liability in the hands of the Assessee or any other person. In view of the same, ratio of this decision cannot be applied in the case of the Appellant because a tax liability was imposed for the first time. 2.15. The decision in the case of Sony Ericsson (supra), relied on by the Hon'bleDRP Members, revolves around the issue of marketing intangibles. The major portion of the ruling dealt with the method to benchmark the transaction of excess Advertisement, Marketing or Promotion ('AMP') expenditure incurred by the assessee for its foreign counterpart. The concept of adopting Bright Line Test ('BLT') as a legitimate means of deter....
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....ced in Maruti Suzuki India Ltd. (supra) the facts of (he cases of the Assessees in Sony Ericsson Mobile Communications India (P.) Ltd. (supra) did not give rise to a dispute that there is no international transaction involving the Assessee therein and its AEs. In fact each of the Assessees were receiving subsidies/subventions from their respective AEs." [Para 22] .19. From above, it can be concluded that the findings of Sony Ericson were not considered in the subsequent ruling pronounced by the Hon'ble Court for determining the basic question of whether the said transaction of excess AMP expenditure would constitute as an international transaction. Accordingly, the said ruling'should not be applied on the facts of the Appellant. 2.20. Decision of Hon'ble Supreme Court in the case of Sati Oil Udyog (supra) deals with the retrospective application of section 143(1A) of the Act. The main issue was that section 143(1A) provides for an additional tax of 20 percent where the amount of adjustment made under the first proviso to clause (a) of sub-section (1) exceed the total income. In this case, reduction of loss was not specifically covered in the pr....
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....rse of proceedings under section 201 of the Act. In the said submissions one of the contentions raised by CIL was that the above transaction was nothing but a case of internal reorganisation without any involvement of the third party and accordingly, the same should not come within the taxability of the provisions of the Act. Reliance was also placed on the decision of Vodafone5 and it was argued that in the case of CIL there is no change in the controlling interest as a result of internal reorganisation (refer Para 8.15 to 8.18 - Page 240 to 241 of the Appeal Documents}. 2.26. To the above, AO has observed that the share purchase deed provided for cash consideration for 24.31 percent shareholding in CIHL from the Appellant to CIL. To finance this acquisition, CIL brought an IPO in the Indian capital market and the proceeds of the IPO was paid to the Appellant for acquiring shares of CIHL. In this way, Appellant divested its stake in the Indian oil and gas business to CIL and received adequate cash consideration for the same. Therefore the claim of the Appellant that these transactions were part of the internal reorganisation of the group and are revenue neutral is not co....
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....as paid by CIL out of the funds received from the private placement and public issue of new shares as part of IPO of the CIL. 2.31. Under the above scheme your Honors will appreciate that this is purely an internal reorganisation of the Indian operations of the Cairn group. There can be no tax which can be levied on the internal reorganisation where there is no increase in the wealth of the Appellant. 2.32. In the DAO, after considering gist of the RBI Approval dated 10 October 2016, the AO observed that the Appellant presented the facts before the Foreign Investment Promotion Board ('FIPB') in such a way that the Appellant is making an investment in an Indian Company. In the view of the AO, the cash component of the transferred shareholding for the 4th Tranche was not disclosed in the FIPB application, neither was any approval taken for the same. After considering the approval issued by Reserve Bank of India ('RBI'), the AO has further observed that only the share swap transaction was approved by the FIPB and RBI, which followed that the first two tranches of the proposed transactions. According to the AO, there was no mention of the appro....
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.... below (refer Para 2.5 - Page 203 of Paper Book)" "2.5 Upon completion of the above, CIL will make an Initial Public Offer ("IPO ") in India with a view to list its shares on the Bombay Stock Exchange and the National Stock Exchange. * Under the IPO, CIL will offer a minimum 10 % of its post issue capital to the public for cash. At the same time as the IPO, CIL will issue up to 70 % of its post issue capital, to CUHL in exchange for shares of CIHL. CUHL will subscribe for these shares in exchange for the transfer of an additional stake of up to 70 % in CIHL to CIL. Since this subscription for shares of CIL by CUHL will take place for consideration other than cash, it will require approval of the FIPB. * Subsequent to completion of the IPO, CIL would acquire the balance equity shares (at leant 10%) of CIHL from CUHL, for a cash consideration under the automatic route of the Reserve Bank of India for overseas investments by Indian companies" 2.37. From the above your Honors will appreciate that following points were submitted before the FIPB: a. Subsequent to completion of the IPO - The Appellant clearly mentioned about the ....
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....reme Court directly addressed the inability of a company to profit, or to be taxed, on the basis of internal accounting entries where no third party transactions were conducted. * CIT v Excel Industries Ltd. [2013] 38 taxmann.com 100 (SC), after setting out various decisions of the Hon'ble Supreme Court which relied on the principles of real income, the Hon'ble Supreme Court (while considering whether the value of certain benefits against export obligations were taxable) held that "Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other to pass on the benefits of duty free import to the assessee even without any imports having been made and the probability or improbability of realisation of the benefits by the assessee considered from realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essen....
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....income has accrued to the Appellant. On account of all the steps mentioned above, all the assets which Appellant was holding in India are now available in different form. Rebuttal on other observations of the learned AO and DRP 2.45. Learned AO has observed that in assessing the true nature and character of a transaction, the label which parties may ascribe to a transaction is not determinative of its character. The nature of the transaction has to be determinative of its character. The nature of the transaction has to be ascertained from the covenants of the contract and from the surrounding circumstances. It is relevant to note that this observation is a verbatim reproduction of paragraph 140 of the judgment of the Hon'ble Bombay High Court in Vodafone International Holdings B. Vv. Union of India and Anr. (Writ Petition No. 1325 of 2010) and was not followed by the Supreme Court. 2.46. Relying on the decision of SC in the case of National Cement Mines Industries Ltd v CIT[1961] 42ITR 69 (SC) learned AO has observed that it is clear that the intention of Legislature has always been to tax the income arising out of any real commercial transaction....
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....nder the law prevailing then. All the above points of distinction mentioned by the AO do not dilute applicability of the decision on the principle of indirect transfer. Also, unlike Vodafone, no indirect transfer of Indian shares occurred pursuant to the internal reorganisation. Other than CIL, there were no other Indian incorporated companies in the group. 2.50. It is further submitted that the FAO reproduces the findings of the Hon'ble High Court of Bombay in Vodafone International Holdings B. V v. Union of India and Anr. (Writ Petition No. 1325 of 2010) which were subsequently set aside by the Supreme Court, including as set forth below; Paragraph Nos, in Vodafone International Holdings B. Kv. Union of India andAnr. (Writ Petition No. 1325 of 2010) Page Nos. of the Appeal Documents 54(vii)and54(xvii) 261 67 262 77 263 78 and 79 264 80 and 81 265 91. 99 and 100 266 136, 137 and 140 267 However, despite such reproduction, it is categorically stated in the FAO that "in fact the facts of the present case are clearly different and distinguishable from the facts of Vodafone International Holdings B.V. Vs. UOI& ....
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.... shares is a good law for the year under consideration, all the above transfers (i.e. 1sl, 2nd and 3rd transfer) are taxable in India. However, 1st and 2nd transfer, is by way of exchange and 3rd transfer is by way of a sale. 2.55. At this stage, it is important to bring the difference between the concept of'sale' and 'exchange' and its impact on computation of capital gains. When any asset is transferred and the amount of consideration is fixed by both the parties i.e. seller and buyer, then it is a transfer of assets by way of sale. Such fixed consideration for sale can be discharged either by cash or by any other asset or both. In such a case, while computing capita! gains in the hands of seller, full value of consideration will be the amount of consideration fixed by both the parties. Further, when any asset is transferred in lieu of another asset and no specific amount for consideration is agreed between the parties that) it is a case of transfer by way of exchange. In such a case, while computing capital gains, fair' market value of the asset received in consideration for the asset transferred should be considered as full value of consideration, ....
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.... truth two transactions, one transaction of sale and the other a contract under which the shares are accepted in satisfaction of the liability to pay the price. The fad that as a result of the transfer of the shares of the "company" to the assessee firm, the latter obtained considerable profits, will not alter the true nature of the transaction" 2.60. It was further observed that "What exactly is the meaning of the expression "full value of the consideration for which sale is made? Is it the consideration agreed to be paid or is it market value of the consideration? In the case of sale for a price, there is no question of any market value unlike in the case of an exchange" 2.61. In the case of CIT v George Henderson and Co (supra), the Assessee sold shares at INR. 136 per share when the market value of the shares was INR 620 per share. The Income-tax Officer held that the respondent had sold the shares at the book value of Rs. 136 per share whereas the market value of the shares on that date was Rs. 620 per share and the difference of Rs. 484 per share was capital gain arising from the sale of the shares under section 12B of the Income-tax Act, 1922. 2....
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....es at par (credited as fully paid) to the Vendor at Completion " (refer Page 62 of the Paper Book) 2.65. As observed by the above agreement, consideration was agreed as an allotment and issue of the consideration shares. Which means that for the transfer of shares of nine subsidiaries, the consideration was paid by the CUHL to CPLC was by way of issue of shares i.e. it was a transfer by way of exchange. Hence, full value of consideration in the hands of the CPLC should be the fair market value of the shares of CUHL on the date of transfer. 2.66. As per the ratio laid down by Hon'ble SC, capital gain in the hands of CPLC should be computed as under: Full Value of Consideration [refer Note (a) below] 266,81,87,10,140 Less: Cost of acquisition . . _2K78,36J,97,5_52 Capital Gain Taxable in the hands of CPLC ' 245,03.50,12.588 .; [refer Note (b) belowl ij j (a) Full value of consideration should be the fair market value of the shares of nine subsidiarj companies. However, since the valuation of the shares of CUHL was not available on the date of transfer, value of the shares of CIHL transferred vide agreements dated 15 Septem....
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....e two transfers, the valuation of shares which is received on transfer of shares of CIHL is considered for the purpose of fair value of shares. (d) Full value of consideration in the hands of CPLC should be considered as cost of acquisition in the hands of CUHL. N 2.70. Capital gain on the 3rd transfer of shares i.e. transfer of shares of CIHL to CIL should be computed as under: Full Value of Consideration [refer Note (e) below] 266,81,87,10,140 Less: Cost of acquisition [refer Note (f) below] 266.81.87.10.140 <$p Capital Gain Taxable in the hands of CUHL ________Nil (e) Full value of consideration as considered by the AO in computation of capital gains. (f) Full value of consideration in the hands of CUHL in the capital gain computed in Para 2.69 above, should be considered as cost of acquisition in the hands of CUHL. 2.71. Relying on the rationale of the decision of Hon'ble SC discussed above in the George Henderson (supra) and others referred to above, for computing capital gains of these transactions [i.e. Sr. 2.53(a) and 2.53(b)], full value of consideration should be taken as fair market value of ....
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....transferred in the instant case is neither in dispute and or is the revenue questioning the adequacy of the same; e. Various provisions of Income-tax Act, 1961 pertaining to foreign Companies in respect of arms length pricing render this judgment totally inapplicable in the instant case. 2.77. With due respect to the above observation of the learned DRP, the Appellant most respectfully submits that learned DRP has not been able to appreciate the correct perspective from which this decision is quoted by the Appellant. Though the case was remanded back by the Hon'ble SC and was rendered in the context of earlier Income-tax Act, 1922. However, the principle of sale and exchange were prevailing under both the laws (i.e. 1922 and 1961). In view of the same, the principle dealt with by Hon'ble SC hold good even today. Further, when the case is again remanded back to the Tribunal after giving the principle of law does dilutes the precedent value of the judgment. 2.78. Further, learned DRP has made a very generic remark saying that various provision of Income-tax Act, 1961 pertaining to foreign Companies in respect of arm's length price will render this judg....
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...., the AO has alleged that, on sale of shares of CIHL, huge gain is accounted in the books of accounts, by the Appellant. Your Honors will appreciate that the gains accounted in the financial statements of the Appellant does not determine the tax treatment while offering any income for taxing in India. Taxability of such gains will be determined as per the provisions of the Act, which also includes interpretation of the law by the Hon'ble SC7. 2.82. Reliance is placed on the decision of Hon'ble SC in the case of Kedarnath Jute Mfg. Co. Ltd. v CIT [1971] 82 ITR363 (SC) wherein it was held that "Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account . be decisive or conclusive in the matter,'"' In view of the same, even if the amount is recorded as gain in the books of CUHL, it will not necessarily be taxable as per the provisions of the Act. 2.83. Reliance is further placed on the decision of Hon'ble SC in the case ofTuticorin Alkali Chemicals & Fertil....
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....ion of the capital gain, he referred that provisions of section 55 (2) do not apply to the facts of the case and therefore he relied upon the decision of the Hon'ble Supreme Court of India in case of Miss Dhoon Dadabhoy Kapadia versus Commissioner of income tax (1967) (63 ITR 651) (SC). He further referred to the decision of the Hon'ble Supreme Court of India in CIT versus R R Ramakrishna Pillai (1967) 66 ITR 725 (SC) and submitted that in the present case, it is a case of exchange and not of sale as the consideration has been settled by allotment of shares, therefore it was not a transfer for a price but for exchange of assets and therefore the fair market value of the assets shall be considered for working out cpital gain in the hands of assesseee. Therefore in the present case of the series of the transaction, There is no cost of acquisition which is less than the exchange price and hence there is no capital gain. He further relied upon the decision of the Hon'ble Bombay high court in case of Commissioner of income tax - 6 versus Bharat Bijlee Ltd (2014) 46 Taxmann.com 257 (Bombay). His contention was that of acquisition of those shares is the market value of those shares and th....
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....eller" and CIL as "the Purchaser" with CEP being "the Guarantor". Prior to this deed another Subscription and Share Purchase Agreement2 was also executed on 15th September 2006 between the same three parties, where also the said parties were identified similarly i.e. CUHL being the "the Seller", CIL being the "the Purchaser" and CEP as "the Guarantor", 5. Pursuant to the Share Purchase Deed and the Subscription and Share Purchase Agreement, CUHL "sold the 100% investment in Cairn India Holdings Ltd"3i.e 251,224,744 shares of CIHL to CIL "for a total consideration amounting to INK 266,818,710,140 partly in cash and partly by issue of its [CIL] shares to CUHL"4. Thus a total consideration of "INR 266,819 mn" or Rs. 26681.9 crores was "paid for acquisition of CIHL"5 by CIL to CUHL 6. Altogether 251,224,744 CIHL shares of GBP 1 each were earlier acquired by CUHL in the following manner: 221,444.034 shares - acquired on 7th August 2006 Following the Share Exchange Agreement6 CUHL transferred shares of nine (9) group companies7 to CIHL. In return, as a consideration CIHL issued 221,444,034 of its own shares of GBP1 each to CUHL, and 29,78....
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....exchange of the shares of nine (9) companies (book value GBP221,444,034)and 29,780,710 shares in lieu of the debt of GBP29,780,710 transferred to CIHL. 12. It was these 251,224,744 shares of CIHL which when sold to CIL resulted in total consideration of Rs. 26681.87croresreceived in the hands of CUHL.The transactions of sale/purchase/swap were effected in the following tranches: Date Transaction Mode Number of shares Consideration Received (Rs) Consideration received as 12 Oct 2006 Sale/Purchase 41,493,659 50,373,987,924 Cash 22 Nov 2006 Sale/Purchase 13,390,789 17,554,239,705 Cash 20 Dec 2006 Swap 135,267,264 137,882,382,880 Consideration received in the form of 861,664,893 Shares of CIL valued at @160 per share 29Dec 2006 Sale/Purchase 61,073,032 61,008,099,631 Cash TOTALS 251,224,744 266,818,710,140 13. Before executing the sale of CIHL shares to CIL, CUHL had subscribed to 365,028,898 shares of CIL (@ 190 per share)17 for a sum of Rs. 6935 crores paid in three tranches of Rs. 5037 cr on!2 Oct'06, Rs. 1755 c....
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.... • 221,444,034 shares of GBP1 face value each acquired (on 7th Aug'06) by transferring nine (9) companies holding Indian assets of aggregate book value of GBP221,444,034 to CIHL • 29,780,710 shares ofGBPl face value each acquired (on 1st Sep'06) by selling a debt of GBP29,780,710 to CIHL22. The transaction of sale of debt of GBP29,780,710 by CUHL for a consideration of equal number of shares from CIHL clearly establishes the price that CUHL paid for each CIHL share at the time of acquisition i.e. GBP1. The earlier transaction of acquiring 221,444,034 shares was also by paying in the form of nine (9) companies, whose book value was GBP221,444,034, placing the cost of acquisition for each CIHL share as GBP1. The cost of acquisition for 251,224,744 CIHL shares, which were eventually sold by CUHL to CIL, was accordingly taken as GBP 251,224,744 (i.e. Rs. 2178,36,97,552)23. Thus, for acquisition of 251,224,744 CIHL shares, CUHL parted with the assets worth GBP251,224,74424which has accordingly been taken as the cost of acquisition. * -y- 19. Full value of Consideration received in respect of the capital asset i.e. 251,224,744 CIHL shares &....
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....x in India by way of the capital gains arising from the transfer of the assets situated in India, reopening of assessment u/s 147 within the prescribed time limit was entirely valid. Part-V: CONCLUSIONS 22. Through a series of transactions, CEP transferred the assets it owned in India, first to CUHL and then to CIHL, the companies incorporated outside India. Eventually, the assets situated in India were transferred to CIL, an Indian company, for a consideration of Rs. 26681 cr. The final transaction of selling Indian assets to an Indian company was done after the market value of Indian assets was ascertained by independent valuation and finally established through the IPO. Through sale of Indian assets to an Indian company, Cairn Group made stupendous gains and paid no taxes anywhere. 23. Moreover, when asked to file tax returns and pay tax dues in India, the Cairn Group has dragged Government of India before an International Arbitration Tribunal by invoking Bilateral Investment Protection Agreement between India and UK. India is contesting the jurisdiction of the Arbitration Tribunal in this matter of taxation, which is a sovereign function. Presently....
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....hit by the provisions of section 9 (1) (i) read with explanation 5 of that section as there is a transfer of share or interest in a company as its value is substantially derived from assets located in India. He relied up on decision of privy council in case of Rohdesia metals Ltd (liquidator) versus Commissioner of taxes [ vol. IX ITR ( Statutes) 45 to explain source-based taxation and submitted that where the source of income is residing the income is chargeable to tax in that particular source country. With respect to the provisions of section 2 (14 ) of the act, he referred to the explanation inserted w.e.f. 01/04/1962 by The Finance Act, 2012 and submitted that 'property' includes right of management or control. In the present case, the right of management and control has been transferred from one entity to another entity and therefore the provisions of section 2 (14) is also satisfied. With respect to the argument of the assessee that at the time of entering into force the double taxation avoidance between India and United Kingdom, taxing provision as per the domestic law prevalent on that day are required to be seen, he submitted that the explanation 5 inserted by The F....
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....nt to Cairn India holding Ltd, Jersey for 29780710 ordinary shares of GBP 1 each issued by Jersey company to the appellant. Thereby, in nutshell, 29780710 shares were acquired by appellant of Cairn India holding Ltd on account of sale/ transfer/ assignment of debt. Therefore by this stage appellant acquired ( 221444034 + 29780710) 251224744 of Cairn India holding Ltd. Subsequently the assessee sold all the shares to a newly formed company in India i.e., cairn India Ltd, through subscription and share purchase agreement dated 15/09/2006, and share purchase deed dated 12/10/2006. As per submission of the assessee, consideration for this transfer was settled partly in cash and partly by shares issued in cairn India Ltd in favour of the appellant. It is an undisputed fact that Cairn India holding Ltd is the holding company of 9 subsidiary companies in India who are engaged in the business in oil and gas sector in India. Therefore the transaction entered into by appellant of transferring 251224744 shares of Cairn India holdings Limited to Cairn India Limited on 12/10/2006 is whether liable to tax in India or not is the precise issue before us. We also examined the other connected ....
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....h or from' any property In India shall be chargeable to tax as income deemed to accrue or arise in India in terms of the provision of section 9 (1) (i) of the act. The cairn India Holdings Limited is the holding company of those subsidiary companies and appellant is holding company of the Cairn India Holdings Limited. Therefore, it is apparent that appellant is holding rights in control and management of the shares of the 9 Indian subsidiary companies engaged in the business of oil and gas Sector through holding subsidiary structure. Now appellant has transferred this property to Cairn India Limited partly in cash and partly in exchange of shares. Appellant submits that it is a case of business reorganization and there is no increase in wealth of the Group. According to us there are series of transactions entered in to by the group, which culminated in to the Initial Public Offering of 98639903 shares @ 160 per share of Cairn India Limited. Part of the purchase price of the share of Rs. 6101 crores have been paid out of the proceeds of the public issue by Cairn India Limited to the appellant. In the IPO as per Annexure 1 to the letter submitted before DRP placed at page no 159 of t....
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.... On 12 October the company entered into a 2nd agreement with Cairn India Ltd, the share purchase deed, which provided for Cairn India Ltd to acquire the remaining 78.15% of the share capital of Cairn India Holdings Ltd. 53.84% was acquired through a share for share exchange and 24.31% was acquired for cash. Total cash proceeds were approximately GBP 677m. GBP 312 M was receivable in Indian rupees and the company entered into an currency exchange option over the year end to convert the Indian rupees into GBP. The sale of Cairn India Holdings Ltd to Cairn India Ltd resulted in the company generating an exceptional gain on sale of GBP1.36 1 billion." Further reading of note No. 6, which relate to taxation, It is mentioned that no tax has been provided in respect of the disposal of part of the company's investment in its subsidiary is the disposal is exempt from tax under schedule 7AC of the Taxation of the chargeable Gains Act 1992. In view of this, the argument of the assessee that there is no increase in the wealth of the appellant and there is no real income earned by the assessee does not deserve to be accepted. In fact, the assessee has earned substa....
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....n held that when a person carrying on the business transfers the assets to accompany in consideration for allotment of shares it would be case of exchange and not of sale. Therefore it was submitted that in the case of the appellant for the above transfer the capital gain should be computed in accordance with those principle stating that where transfer of assets is in lieu of another asset the full value of the consideration shall be the fair market value of the assets received by the transferor. Further assessee has submitted that the 1st and 2nd transfer of share as per the stand of revenue is also chargeable to capital gain. Therefore, it was submitted that 1. capital gain in the hands of Cairn energy plc who exchange the shares in the 1st transaction receiving a sum of Rs. 266818710140/- will have the cost of acquisition of Rs. 21783697552/-and may be liable to capital gain tax in the hands of that cairn Energy PLC of Rs. 245035012588/-. 2. Similarly, in the case of 2nd transfer of shares on 7th of August 2006 when shares of 9 subsidiaries were transferred by appellant to Cairn India holding Ltd should be computed taking the full value of consideration....
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.... not at all been taxed. Therefore, assessee cannot say that earlier transactions also have been charged to tax. Regarding cost of acquisition the claim of the revenue is that shares of Cairn India holding Ltd was acquired by appellant into trenches , i.e. 221444034 shares @ GBP 1 per share and 29780710 shares by selling debt of GBP 29780780710. Therefore actual cost of acquisition is GBP 25124744 which is converted by applying exchange rate of Rs. 86.71 per GBP is Rs. 21783697552/- only. On careful consideration on the argument of the both the parties, it is noted that there is no difference between the full value of the consideration determined by the both the parties received accruing to the assessee as a result of the transfer of the capital asset. Both have taken the same at Rs. 266818710410/-only. As there is no difference between the full value of consideration taken by revenue as well as the assessee, we do not find any reason to go in to the controversy whether the transaction is of exchange or sale. Further merely because the consideration is not stated in monetary terms in the various agreements and deed, it cannot be said that sales consideration as well as the cost cann....
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....the original financial asset ; (ii) in relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee ; (iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ; (iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee ; and (iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset ; (ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for dem....
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....red the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner. Further provisions of section 49 provides that in certain mode of acquisition the cost with reference to the property, shall be taken as under:- (1) Where the capital asset became the property of the assessee- (i) on any distribution of assets on the total or partial partition of a Hindu undivided family ; (ii) under a gift or will ; (iii) (a) by succession, inheritance or devolution, or (b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or (c) on any distribution of assets on the liquidation of a company, or (d) under a transfer to a revocable or an irrevocable trust, or (e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vica) or clause (vicb) or clause (xiii) or clause (xiiib) ....
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....ified security or sweat equity shares, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account while computing the value of fringe benefits under clause (ba) of sub-section (1) of section 115WC. (2AC) Where the capital asset, being a unit of a business trust, became the property of the assessee in consideration of a transfer as referred to in clause (xvii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share referred to in the said clause. (2C) The cost of acquisition of the shares in the resulting company shall be the amount which bears to the cost of acquisition of shares held by the assessee in the demerged company the same proportion as the net book value of the assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger. (2D) The cost of acquisition of the original shares held by the shareholder in the demerged company shall be deemed to have been reduced by the amount as so arrived at under sub-section (2C). (2E) The provisions of sub-section (2), sub-section (2....
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....aking the cost of acquisition, which is derived by issues of shares as well as by sale of debt. In the result we confirm the order of the Ld AO in working out capital Gain on sale of shares of Cairn India Holding limited in the hands of appellant of Rs. 245035012588/-. v. The ground No. 3.12 has been raised as an additional ground of the appeal , which has been admitted, and therefore requires to be adjudicated. This ground states that according to Article 14 of Indian United Kingdom except as provided in Article 8 and 9 each contracting state may tax capital gain in accordance with the provisions of its domestic law. This Double Taxation Avoidance Agreement was notified on 11.02.1994. The contention of the assessee is that for the purpose of taxability of capital gain the domestic law should be seen as it was in existence on the date on which India UK DTAA was notified. Precisely the argument of the assessee is that on 11.02.1994 the retrospective amendment to section 9 made by the Finance Act 2012 was not in existence and therefore, if the assessee is eligible for the benefit of DTAA then the domestic tax law is required to be read ignoring the retrospective amend....
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....ided for any tax in respect of disposal of the part of the company's investment in its subsidiaries as the disposal is exempt from tax under Schedule 7AC of the Taxation of changeable gain Act 1992 of United Kingdom. (iv) Coming to the decision of the Hon'ble Delhi High Court in case of DIT Vs. New Skies Satellite BV wherein the Hon'ble High court has held that in relation to applicability of Article 3(2) of the relevant DTAAs, that it can apply only to terms not defined in the DTAA. Since the relevant DTAAs in the case before them defined "royalty", Article 3(2) could not be applied. For terms which are defined under the DTAA, there is no need to refer to the laws in force in the Contracting States, especially to deduce the meaning of the definition under the DTAA. Further, the court has held that neither act of parliament supply or alter the boundaries of DTAA or supply redundancy to any part of its. Similarly, according to us, the provisions of DTAA where it simply provides that particular income would be chargeable to tax in accordance with the provisions of domestic laws , such article in DTAA also cannot the limit the boundaries of domestic tax laws. In view of ....
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....The reason that no tax was levied in 2006 was that the transactions in question were not taxable in 2006 - the only arguable basis for taxing them (which Appellant in any event rejects) arose in 2012 with the passage of the retrospective amendment. This has been confirmed by distinguished governmental commissions. 2.4. The Appellant submits that in the instant case, the legal dictum lex non cogit ad impossibillia would be attracted which in simple terms means that 'law cannot compel to do the impossible'.In this regard, the Appellant relies on the following judicial precedents: a. In case of CIT v. Revathi Equipment Limited. [2008] 298 ITR 67 (Mad.), wherein the Madras High Court held that. ".......Normally, new provisions are introduced with effect from the next assessment year, but this provision under section 35DDA was introduced by Parliament in its wisdom with effect from April 1, 2001, ie., the same year and that is why difficulty has arisen for visualizing the liability and the assessee could not deduct such expenditure. In fact in almost identical circumstances in the Third Member decision by the Delhi Bench in the case of Haryana Warehousing Cor....
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....nal accepted the case of the assessee that the assessee is not subject to advance tax. Findings given by the Tribunal are based on valid materials and evidence and we do not find any error or legal infirmity in the order of the Tribunal so as to warrant interference. " b. In case of Ashok Leyland Ltd. v. DOT [2014] 47 taxmann.com 414 (Chennai. Trib), it was held that, "14. The third issue raised by the assessee on merit is that the Commissioner of Income Tax (Appeals) has erred in confirming the levy of interest under Sections 234B and 234C, which were worked out on the basis of the tax determined in the income escaping assessment. We are inclined to allow this ground raised by the assessee. The Hon'ble Madras High Court in the case of CIT v. Revathi Equipment Ltd. [2008] 298 ITR 67 has held that when an assessee could not have foreseen liability caused on account of a subsequent legislative amendment, the assessee cannot be liable for interest on the differential amount of tax in the reason that the assessee could no! have paid the differential amount of tax for the relevant previous year. Here also, the income escaping assessment was passed because of the retrospect....
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....ucture could not have allowed the Appellant to file return of income. 2.6. In relation to above, the Appellant reliance is placed on the case of Ms. Priti Pithwala v. ITO [2003| 129 taxman 79 (Mum.) (Mag) (SMC), it was held that: "9. With a view to simplify the procedure, which had led to litigation and consequent delay in realization of dues, the Amending Act, 1987, has substituted the aforesaid provisions by a simple scheme of payment of mandatory interest for defaults mentioned therein. The aforesaid provisions provides that where a return of income is furnished after the due date or is not furnished, the assessee shall pay simple interest at the rate of one and one-fourth per cent for every month, or part of a month comprised in the period of default on the amount of tax on total income determined on regular assessment, as reduced by any advance tax paid or tax deducted at source. As such, the word "regular assessment" is used in the context of computation. It does not say that the order passed under section 143(3)1144 of the Act shall be substituted by section 147 of the Act. In terms of section 234A(l)(a)( b), the period for which the interest liability is....
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....gly on this aspect I set aside the impugned orders and restore the matter to the file of Assessing Officer, with direction to make fresh computation, after providing adequate opportunity to the assessees of being heard. 2.7. Further the following judicial precedents have also upheld that interest under section 234A cannot be levied for the whole period but restricted to the period for the Appellant is permitted to file return of income under the Act: * ITO v. Capt. H.R. Vinayak [2006] 9 SOT 322 (Mum.) * ITO v. Amar Chand Boarad [2013] 33 taxmann.com 683 (Jodhpur-Trib.) Directions of the DRP is not correctly followed by the learned AO 2.8. The learned AO has erred in incorrectly following the directions of the DRP without providing any opportunity of being heard to the Appellant. 2.9. Without prejudice to above, the Appellant wishes to submit that the DRP in its directions observed that where a "clear cut finding of fact', duly supported by relevant commercial contract clauses or other documentary evidence from where an inference or presumption could be drawn that Appellant had represented to the payer to deduct tax at a lo....
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....the consequences delineated in that provision will visit the payer. The appeal of the Revenue is accordingly dismissed without any order as to costs.'' * DIT v.NGC Network Asia LLC [2009] 222 CTR 85 (Bom) "8. We are in respectful agreement with the view taken In the case ofCITv. Sedco Forex International Drilling Co. Ltd. (supra), by the Uttaranchal High Court. We are clearly of the opinion that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee assessee. 9. Considering the submissions of both parties and the provisions of law, consequently the appeal is dismissed.'' 2.13. Further, post decision of Alcatel in the following decisions various tribunals have ruled in favour of the Appellant: * ZTE Corporation v. ADIT (2016) 70 taxmann.com 1 (Delhi - Tribunal) * Satellite Television Asian Region Ltd. v. DDIT (2016) 66 taxmann.com 247 (Mumbai - Trib.) * Kawasaki Heavy Industries Ltd. v. ACIT (2016) 67 taxmann.com 47 (Delhi - Trib.) 2.14. The ratio of above rulings clearly suggest that since the tax is deductible at source on all the payments m....
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....ent one where on the last date of the Financial Year preceding the relevant assessment year, the assessee had no liability to pay advance tax, he would be nevertheless asked to pay interest in terms of section 234B and section 234C of the Act for default in making payment of tax in advance which was physically impossible. (Para 14) " * Orient Overseas Container Line Limited v ADIT (ITA No. 7089/Mum/2010 and ITA No. 7365/Mum/2012) (ITAT Mumbai) "P. Other common issues raised by the assessee in the present Appeals related to the levy of interest under section 234B and 234C. As regards the levy interest under section 234B, the assessee in the present case is admittedly a Non Resident in India and its entire income is liable for deduction of Tax at source. As held by the Hon'ble Bombay High Court in the case ofDIT (International Taxation) Vs. NGC Network Asia LLC[2009]313 JTR187(Bombay), when a duty is cast upon payer to pay tax ats source, on its failure to do so, no interest can be imposed upon payee Assessee under section 234B. Respectively following the decision of Hon'ble Jurisdictional High Court, we hold that interest under section 234B cannot be impo....
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....income payable to a non-resident is subject to tax deduction at source u/s 192 of the Act question of payment of advance tax do not arise and consequently, provisions of section 234B and 234C also have no obligation. Admittedly in the present case , the income of nonresident appellant has become chargeable to tax due to retrospective amendment in the act and further the payments made to assessee was also subject to withholding tax u/s 195 of the act and in view of the above judicial precedents cited before us, we are of the opinion that assessee cannot be burdened with interest u/s 234A and 234B of the Act on tax liability arising out of retrospective amendment w.e.f. 01.04.1962 in the provision of section 9(1) of the Income Tax Act. In the result ground No. 5 of the appeal of the assessee is allowed. 42. Ground No. 6 of the appeal is against initiation of penalty proceedings u/s 271(1) (c) of the Act. No specific arguments were advanced before us and as such at present only penalty proceedings have initiated by ld AO. The issue is premature according to us and therefore ground No. 6 of the appeal is dismissed. 43. In the result, appeal of the assessee is ....