TaxTMI 
TaxTMI 
2019 (7) TMI 136
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....t of Certiorarified Mandamus to quash the draft assessment order passed by the respondent under Section 143 (3) read with Section 144 C(1) of the Income Tax Act, 1961, dated 31.12.2017 and for a direction to pass fresh assessment in conformity with the order bearing F.No.C-101/TPO-1, AY.2014-15, dated 31.10.2017, issued by the Transfer Pricing Officer (Joint Commissioner of Income Tax - TP01), Chennai and the order bearing No.ITBA/TPO/F/92CA3/2017-18/1007519415(1), dated 01.11.2017, issued by the Transfer Pricing Officer (Assistant Commissioner of Income Tax - TPO Circle 1(1), Chennai, respectively. 4. According to the petitioners, during the year 2013 CTSIPL had substantial cash surplus, for which, there was no immediate requirement for the Company. The buy-back of shares was in the best interest of shareholders and hence, CTSIPL identified buy-back of shares under Section 77A of the Companies Act, 1956. 5. The petitioners would state that since all the shareholders of CTSIPL were non-residents, the buy-back had to be done in accordance with the regulations farmed by the Reserve Bank of India under the Foreign Exchange Management Act, 1999 ["FEMA"]. The RBI Circular on Forei....
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.... notice was served on the petitioners to show-cause as to why the shares should not be valued at Rs. 8,512/- and why the excess consideration over the said Fair Market Value not to be assessed to tax under Section 56(1) of the IT Act. 8. The petitioners would claim that the Authorized Representatives of their Company replied to the show-cause notice on 26.12.2017 stating that there was no possibility of giving reply within the specified time and sought for reasonable time. But, on 27.12.2017, the first respondent sent an e-mail to the Authorized Representatives of the petitioners to attend the hearing on 28.12.2017, as a last and final opportunity. The Authorized Representatives appeared and placed before the first respondent the fact that the valuation of the shares had been accepted by the RBI and TPO and the Returns of the other two shareholders had been accepted by the Department. The petitioners further pointed out that the CTSIPL declared the amount of money paid towards buy-back in the financial statements and Form 3CEB and the Assessing Officer had accepted the value so paid. But, the impugned Draft Assessment Orders came to be passed on 31.12.2017. 9. The impugned Dr....
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.... " Sl.No. Dates Events 1 28.08.2015 Notice under Section 143(2) was issued to the assessee and directed it to appear on 15.09.2015. No response from the petitioner. 2 16.09.2015 Email was sent to the assessee requesting it to acknowledge the receipt of the notice and file necessary documents in favour of its claims. Again, there was a non-compliance from the assessee regarding the above said notice. 3 28.09.2015 Authorized Representative of petitioner was called and the notice was once again served on the assessee. 4 28.12.2015 After 91 days of receipt of the notice the assessee filed its submission. 5 13.04.2016 Notice under Section 142(1) was issued to the assessee and requested to appear on 18.04.2016 with specified documents. There was a noncompliance by the petitioner by way of non-filling of requested documents. So, case was posted on 29.04.2016 to furnish Form 3CEB, Share Purchase Agreement, Share Valuation Report, Share Holding Pattern, Bank Statements Reflecting Receipts and Computation of Capital Gains. 6 19.04.2016 Assessee filed its 3CEB report alone without any other document. 7 29.04.2016 ....
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....ed only on 08.11.2017 i.e., after lapse of 1 1/2 years. Since the valuation of shares is a complex assignment and it requires meticulous and painstaking efforts, the first respondent took six weeks time to arrive the value of shares. Further, the first respondent summoned and recorded the statement of Senior Executives of CTS India and its auditors to arrive at its conclusion before issuing the show-cause notice, dated 22.12.2017. 13. It is further stated that CTS India being the subsidiary of the petitioners had not declared any dividend since 2003 in order to avoid paying Dividend Distribution Tax ("DDT") under Section 115O of the IT Act. The only reason to buy-back the shares because of new provision introduced vide Section 115QA of the IT Act, viz., Buyback Distribution Tax ["BBDT"] from 01.06.2013 imposing tax at 20% of the buy-back after 01.06.2013. It is alleged that with the singular intention to avoid DDT and BBDT, the petitioners had devised the dubious transaction paying exorbitant amount for the shares, so that it could take undue and unintended benefit of India - Mauritius tax treaty and thereby indulged in treaty abuse. 14. According to the first respondent, Sec....
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....rk shall be the fair market value; (iii) in case the artistic work is received by any other mode and the value of the artistic work exceeds rupees fifty thousand, then assessee may obtain the report of registered valuer in respect of the price it would fetch if sold in the open market on the valuation date; (c) valuation of shares and securities, - (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely,- (i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,- (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately pre....
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....d, determined valuation of shares at Rs. 7,990/-. The first respondent has further stated that income accruing to a non-resident due to treaty abuse and colourable device needs to be looked into from the application of the Act, DTAA and once there is a sham transaction or a non genuine transaction, the treaty benefits would be denied to the assessee and only the provisions of the Act would be applicable. The respondents have emphatically denied that the impugned order is premeditated one, even though, the same Deputy Commissioner / second respondent herein, while sitting as a Assessing Officer for CTS India raised the same issue at the assessment of CTS India. It is stated that the principles of res judicata / stare decisis are not applicable to the Income Tax Proceedings. The Income Tax Act recognises that if new information is available to the concerned Assessing Officer, the assessment can be reopened under Section 147 / 148 of the IT Act. The first respondent after unearthing new information like valuation report of the year 2016, Scheme of Arrangement as approved by the High Court, statements of Senior Executives of CTS India and its Auditors, Financials of subsequent years....
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....ct compliance with Section 77A of the Companies Act, 1956. The valuation of the shares have not been found fault with by Reserve Bank of India or the Transfer Pricing Officer or by the respondent herein in her previous capacity as an Assessing Officer of the CTSIPL. Since allegations have been made against the Assessing Officer, she has to be impleaded as a party respondent. 21. In the instant case, the respondent re-opened the assessment of the petitioners on the ground that the shares were overvalued. The first respondent held that the Fair Market Value is to be determined under 11UA of the Rules of IT Act and the determination of value of shares under DCF method for the purpose of RBI application is incorrect and passed the Draft Assessment Orders. The Cognizant (Mauritius) Limited seeks exemption in payment of income tax under India - Mauritius Double Tax Avoidance Agreement and in the case of US Company Rs. 134,05,06,915/- has been paid as capital gain at the rate of 10%, but the Revenue claims tax at the rate of 30% for the difference paid over and above the Fair Market Value under Section 56(1) of the IT Act. 22. Mr.Gopal Subramanium, learned Senior Counsel for the pet....
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....ld not come under dividend in view of Section 2(22)(iv) of the IT Act. (vi) The second respondent, who was an Assessing Officer for CTSIPL raised queries for determining the value per share at Rs. 23,915/- and after enquiry, accepted the Income Tax Return submitted by the CTSIPL. However without any other materials, the respondent issued notices contending that the value of the Fair Market Value of the share was Rs. 8,512/- and is attempting to tax on the remaining amount under Section 115 QA of the IT Act. Section 115QA was inserted in the Act and came to effect from 01.06.2013 and this Section cannot be retrospectively implemented / applied for imposing tax on the petitioners, which transactions had completed on 22.05.2013. (vii) Though the respondent issued notice in the year 2017 and the petitioners supplied relevant documents and filed replies, the final show-cause notice was issued only on 22.12.2017, but subsequently, without proving ample opportunity, the Draft Assessment Orders dated 31.12.2017 came to be passed without any Authority of law; in violation of Rule of law and complete failure of natural justice. (viii) Section 90 of the IT Act, a Do....
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....ss payments made over and above Fair Market Value are subjected to tax under Section 56(1) of the IT Act. (vi) The jurisdiction of the Assessing Officer and the Transfer Pricing Officer is distinct. The Assessing Officer unearthed new materials before issuance of show-cause notices to the assessees to determine the correct value of the shares. Stating so, the learned Additional Solicitor General justified the orders impugned herein. 24. Heard Mr.Gopal Subramanium, learned Senior Counsel, assisted by Mr.Srinath Sridevan, learned counsel for the petitioners and Mr.G.Rajagopalan, learned Additional Solicitor General, assisted by Mr.Karthik Ranganathan, learned Senior Standing Counsel for Income Tax Department and perused the entire materials placed on record. 25. In the instant case, the questions arise for consideration are whether the principles of natural justice has been violated as alleged by the petitioners and whether these Writ Petitions are maintainable at this stage. 26. It is an admitted fact that the Income Tax Returns of the petitioners were filed on 29.09.2014 and 29.11.2014 respectively. The respondent issued notice under Section 143(2) of the IT Act t....
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.... had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the department to the appellant, but it refused even to look at the trunk load of books and papers which Mr Banerjee produced before the Accountant-Member in his chamber. No harm would have been done if after notice to the department the trunk had been opened and some time devoted to see what it contained. The assessment in this case and in the connected appeal, we are told, was above the figure of Rs. 55 lakhs and it was meet and proper when dealing with a matter of this magnitude not to employ unnecessary haste and show impatience, particularly when it was known to the department that the books of the assessee were in the custody of the Sub- Divisional Officer, Narayanganj. We think that both the Income Tax Officer and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion. It is thus a fit case for the exercise of our power under Article 136." (ii) Mohinder Singh Gill Vs. The CEC [(19....
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....se. After all, it is not obligatory that counsel should be allowed to appear nor is it compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgent meeting with the concerned parties summoned at an hour's notice, or in a crisis, even a telephone call, may suffice. If all that is not possible as in the case of a fleeing person whose passport has to be impounded lest he should evade the course of justice or a dangerous nuisance needs immediate abatement, the action may be taken followed immediately by a hearing for the purpose of sustaining or setting aside the action to the extent feasible. It is quite on the cards that the Election Commission if pressed by circumstances, may give a short hearing. In any view, it is not easy to appreciate whether before further steps got under way he could not have afforded an opportunity of hearing the parties, and revoke the earlier directions. We do not wish to disclose our mind on what, in th....
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....on the facts and circumstances of that case, the framework of the statute under which the enquiry is held. The old distinction between a judicial act and an administrative act has withered away. Even an administrative order which involves civil consequences must be consistent with the rules of natural justice. The expression "civil consequences" encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. In its wide umbrella comes everything that affects a citizen in his civil life." (vi) State of Maharashtra Vs. Jalgaon Municipal Council & Ors. [(2003) 9 SCC 731 "30. It is fundamental principle of fair hearing incorporated in the doctrine of natural justice and as a rule of universal obligation that all administrative acts or decisions affecting rights of individuals must comply with the principles of natural justice and the person or persons sought to be affected adversely must be afforded not only an opportunity of hearing but a fair opportunity of hearing. The State must act fairly just the same as anyone else legitimately expected to do and where the State action fails to satisfy th....
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.... Appellant. In the facts of the present case, we find that such an exercise would be totally futile having regard to the law laid down by this Court in R.C. Tobacco (supra). 46. To recapitulate the events, the Appellant was accorded certain benefits under Notification dated July 08, 1999. This Notification stands nullified by Section 154 of the Act of 2003, which has been given retrospective effect. The legal consequence of the aforesaid statutory provision is that the amount with which the Appellant was benefited under the aforesaid Notification becomes refundable. Even after the notice is issued, the Appellant cannot take any plea to retain the said amount on any ground whatsoever as it is bound by the dicta in R.C. Tobacco (supra). Likewise, even the officer who passed the order has no choice but to follow the dicta in R.C. Tobacco (supra). It is important to note that as far as quantification of the amount is concerned, it is not disputed at all. In such a situation, issuance of notice would be an empty formality and we are of the firm opinion that the case stands covered by 'useless formality theory'." (viii) Andaman Timber Industries vs. Commissioner....
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....petitioners and the relevant paragraphs are extracted hereunder:- (i) V.R.Mohanraj Vs. The Commissioner of Service Tax-1 & another [W.P.No.34481 of 2015, dated 20.04.2016] "10.On a perusal of the impugned order, it is also clear that pursuant to the summons dated 03.09.2013 and 12.11.2013 issued by the Investigating Officer, the petitioner appeared before them on 18.11.2013 and furnished the copies of the Income Tax returns. The petitioner had filed his reply dated 06.07.2015 before the 2nd respondent. The 2nd respondent also afforded personal hearing on 21.07.2015, 06.08.2015 and 12.08.2015. The petitioner was represented by his counsel before the 2nd respondent on 12.08.2015 and submitted that no penalty be imposed in their case since they have paid the entire Service Tax dues prior to issuance of show cause notice. Therefore, it is clear that the 2nd respondent has given an opportunity of personal hearing to the petitioner and he was also represented by his counsel before the 2nd respondent. The petitioner also filed his reply before the 2nd respondent, which was also considered by the 2nd respondent. Therefore, from the above, it is clear that there is no viol....
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.... 226 of the Constitution of India against the reassessment orders which are ex-facie appealable under the provisions of the Act. 13. The Court is therefore satisfied that there is no good reason to invoke the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India and permit the petitioner-company to lay a challenge to the impugned reassessment order dated 18.12.2017 before this Court at this stage." 29. In the first decision cited by the learned Additional Solicitor General, the assessee in pursuance of the summons dated 03.09.2013 and 12.11.2013 appeared before the Officials on 18.11.2013 and also filed a reply dated 06.07.2015 before the second respondent. The second respondent provided personal hearings on 21.07.2015, 06.08.2015 and 12.08.2015. The assessee was represented by his counsel on 12.08.2015. Considering the above facts, this Court held that there is no violation of principles of natural justice. 30. In the second decision of the Karnataka High Court, the Reassessment Order of the Deputy Commissioner of Income Tax was sought to be assailed directly before the High Court, alleging non-grant of adequate opportunity to raise....
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....fficer. In other words, it is contended by the learned Senior Counsel for the petitioners that the Assessing Officer is bound to pass Draft Assessment Orders in tune with the Arms Length Price fixed by the Transfer Pricing Officer and since the Assessing Officer failed to follow the requirement of law and had taken a different view, the Dispute Resolution Panel has no jurisdiction to consider the objection of the petitioners. 34. I do not find any merit in the above submission. Sub-sections 6 and 7 of Section 144 C of the IT Act deals with the duties and powers of Dispute Resolution Panel and for ready reference, it is extracted hereunder:- "Section 144 C - Reference to dispute resolution panel "(1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the elig....
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....lared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee.] (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under subsection (5), the Assessing Officer shall, in conformity with the directions, complete, n....
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.... the Transfer Pricing Officer. The Assessing Officer can always be persuaded by the assessee at that stage to reject the Transfer Pricing Officer's Report and proceed to determine by the Arms Length Price himself. 37. It is to be noted that the Income Tax Act, 1961 is a complete and contained code as it provides for a complete mechanism for redressal of the grievance of the assessee, including Foreign Companies. In the case of Foreign Companies, the Assessing Officer instead of passing final order under Section 143 (3) of the IT Act, passes the Draft Assessment Orders to enable the assessee to make an objection before the Dispute Resolution Panel, which consists of experts in this field. The Dispute Resolution Panel is empowered by the Act to consider the objections, and pass suitable orders, viz., may confirm, reduce or enhance the variations proposed in the draft order. The Assessing Officer is bound to pass final Assessment Orders in tune with the order of the Dispute Resolution Panel. Against the final order, the First Appeal lies before the Commissioner of Income Tax (Appeals) under Section 246 of the IT Act and Second Appeal lies before the Appellate Tribunal under Sec....
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....etitioners has also cited catena of decisions on the principles of law, rule of law, legal effect of RBI directions and interpretation of taxing statutes, retrospective operation of statutes and taxation. There is no quarrel over the principles laid down therein, but in the considered view of this case, the discussions referred supra, the decisions relied on by the learned Senior Counsel for the petitioners have no application to the facts of this case. Further, it is not appropriate to consider those cases at this stage. The rights and contentions of the parties are left open in any proceedings that may be adopted hereafter. 42. As rightly pointed out in the counter affidavit, the Draft Assessment Orders have been passed in discharging the official duty of the second respondent. Even though the second respondent was an Assessing Officer for the Cognizant Technology Solutions India Private Limited and the Income Tax Returns filed by the Company was accepted, but, later the same Assessing Officer had been posted in incharge of international transactions, hence she is very well within her jurisdiction to initiate the proceedings against the shareholders of the Company / the petiti....