AI Drafter 
TaxTMI 
TaxTMI 
2019 (11) TMI 1031
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.... 2. At the outset itself, it was brought to our notice that the issue involved is, no longer res integra and, therefore, after hearing both the parties, we are inclined to dismiss all the stay applications filed by the assessee and dispose of all the appeals in ITA Nos. 1304, 1306, 1308. 1311, 1314 & 1315/Kol/2019.The common facts permeating in all the appeals, are that all the assessee's are the employees of IBM India Pvt. Ltd. (hereinafter referred to as "IBM") who have been sent to Switzerland on company's foreign assignment. The undisputed facts are that the residential status of all the assessee's for the relevant year is "non-resident" in terms of Section 6 of the Act and that they actually rendered services outside India during the period under consideration. The employer viz., IBM deducted tax at source u/s 192 on the entire gross salary earned by the assessee's. The assessee's however claimed in their respective returns of income that the foreign assignment allowance component inter alia included in the gross salary was received by them outside India and that too for the services rendered outside India and therefore fell outside the ambit of total income u/s. 5(2) of the....
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....cuments on record that the case of the assessee was selected for complete scrutiny under CASS wherein one of the parameters for selection was that the income declared under the head 'Salary' in the return of income was lower than the 'salary' reported in Form 26AS. In the course of assessment the AO called for several details in his notice issued u/s 142(1) dated 11.11.2016 along with write-ups on the issues for which the assessee's case was selected under CASS. Before the AO the assessee explained the modalities of receipt of foreign assignment allowance through his TCC issued by Axis Bank which showed that the foreign assignment allowance was received outside India. The assessee also furnished a certificate from his employer that such allowance was paid for the services rendered outside India. Additionally, the assessee furnished the Switzerland tax documents for 2013 & 2014 evidencing that the foreign assignment allowance had been taxed in Switzerland. Taking note of the replies furnished by the assessee, the AO in his assessment order dated 23.12.2016 had accepted the Return of Income ('ROI') filed by the assessee claiming the assignment allowance received by the assessee at Sw....
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....rejudicial to the interest of revenue since in his opinion the assessment order was passed without examining the legal issues involved and interpretation, examination of material on record etc. and accepting the assessee's claim that the income of Rs. 42,97,092/- had not been received in India. Invoking Explanation (2) of Section 263of the Act, the ld. CIT set aside the assessment order of the AO directing him to pass a fresh assessment order after making necessary enquiries on all the issues, including the points on which the assessee has not furnished as discussed supra, after examining the various case laws and correct interpretation of the law in the facts of the case to examine and decide the issue of exemption from taxation on salary amounting to Rs. 42,97,092/-. Being aggrieved by the order of the ld. CIT, the assessee is in appeal before us. 7. In the grounds taken in the appeal, the assessee has challenged the legal validity of usurpation of revisional jurisdiction by the ld. CIT u/s 263 of the Act. According to assessee the ld. CIT has wrongly exercised the revisional jurisdiction u/s 263of the Act since the AO's order on this issue cannot be held to be erroneous a....
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....neous and(ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed by the without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the Ld. CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessin....
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....al income in terms of Section 5(2) read with Section 9(1)(ii) of the Act. Consequently therefore there appeared difference between the salary income reported in Form 26AS with the salary income declared in the return of income. As a result the assessee's case was selected for scrutiny assessment for making enquiries about such differential amount. We note that in the notice u/s 142(1) of the Act dated 11.11.2016, the AO raised specific query requiring the assessment to explain the said difference and furnish his explanation along with supporting documents. In response, the ld. AR of the assessee furnished detailed replies through letters dated 30.11.2016, 05.12.2016&15.12.2016. In his letter dated 30.11.2016, available at Pages 54 to 55 of paper book, the AR explained during the relevant year the assessee was physically present outside India for more than 182 days and therefore he was a 'non-resident' under Section 6 of the Act. Drawing attention to Section 5(2) of the Act, he submitted that the assessee being a non-resident, the income would be taxable in India only if the income was received or deemed to be received or accrued or deemed to accrue in India. The assessee submitted ....
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....me, we would like 10 refer to the letter from Axis Bankissued in case of an employee of IBM India Private Limited (,IBM), MrSudiptaMaity (copy enclosed as Annexure 2) wherein Axis Bank has clarified the methodology of transfer of funds to the Axis Travel Card of employees of IBM from its Nostro Account with ZurcherKantonal Bank (ZKB) outside India. The letter states that the funds are transferred to the international travel card of the employee outside India upon instruction of IBMfrom the Nostro Account maintained outside India. The modality of payment as confirmed by Axis Bank Ltd for SudiptaMaity is same for the captioned assessee......." 10. From the foregoing discussion it is abundantly clear that prior to completion of the assessment u/s 143(3)of the Act, the AO had required the assessee to furnish his explanations with regard to his claim for exclusion of foreign assignment allowance from the ambit of his taxable total income in India. In response the ld. AR of the assessee had furnished before the AO the relevant documentary evidences and also substantiated his explanations in support of his contentions by placing reliance on the relevant applicable legal provisions of t....
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....ew our attention to the notice under Section 142(1) of the Act and in particular to the annexure thereto from which it would appear that the assessing officer wanted the assessee to "furnish in writing and verified in the prescribed manner information called for as per annexures and on the points or matters specified therein before me at my office at 18, RabindraSarani, Poddar Court, 5th Floor, on 04.02.2008 at 11.30 AM.". The annexure to the notice under Section 142(1) of the Act reads as follows:-- 'Requisition u/s 142(1) of the IT Act '61. M/s. J. L. Morison (India) Ltd. - AY 06-07. (1) A write-up on receipt of Rs. 18 crore from foreign co. (2) ...... 77. Mr. Poddar also drew our attention to the reply dated 19th March 2008 given by the assessee to the notice, dated 21st January 2008, under Section 142(1) of the Act. He contended that all the requisite particulars were furnished together with documents. Thereafter, the matter was heard from time to time by the assessing officer as would appear from the List of Dates submitted by Mr. Nizamuddin, learned advocate for the appellant. From the list of dates it appears that....
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....during assessment proceeding and after considering the explanation offered by the assessee that the A.O. had exercised a judicial discretion in the matter while completing the assessment u/s 143(3) of the Act. In such circumstances, the view taken by the A.O. cannot be said to be prejudicial to the Revenue nor can it be said to be erroneous simply because in his order the A.O. did not make any elaborate discussions in that regard." 80. Mr. Poddar contended that neither before the Tribunal nor in the present appeal has any question has been suggested that the assessment order was bad because the same did not disclose any reasons. The contention raised and the judgments cited by Mr. Nizamuddin, as regards exercise of power u/s. 263 of the Act, are misconceived, and also out of the context. 81. Mr. Poddar contended that the finding of the learned Tribunal that the order dated 28th March, 2008 was not passed without application of mind has not been challenged before this Court. No attempt far less any serious attempt was made on behalf of the revenue to demonstrate that the order passed on 28th March, 2008 by the Assessing Officer was wrong either on facts or law. The....
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....ed by the Bombay High Court was quoted in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi). 85. He also drew our attention to a judgment of the Punjab & Haryana High Court in the case of Hari Iron Trading Co. v. CIT [2003] 263 ITR 437/131 Taxman 535, wherein the following views were expressed:-- "The expression "record" has also been defined in clause (b) of the Explanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything....
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....e top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. 89. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact the order was passed by the assessing officer after due application of mind. 90. The judgments cited by Mr. Nizamuddin do not really support his contention. The judgment in the case of Meerut Roller Flour Mills (P.) Ltd. (supra) does not apply because the High court in that case was satisfied that the assessment order was passed without enquiry. 91. The judgment of Cochin Bench of Income Tax Appellate Tribunal in ITA No. 116 /Coch/ 2012 relied upon b....
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.... Poddar indicate that the Assessing Officer is not required to write an elaborate judgment. He contended that the assessing officer may not have any such obligation but it cannot be said, according to him, that the Assessing Officer is under no obligation to record anything in his assessment order. It is not in the first place a fact that he has not recorded anything. From the assessment order, the following facts and circumstances appear:-- "Return was filed on 29/11/06 showing total income of Rs. 3,80,66,940/-. In response to notices u/s. 143(2) and 142(1) of the I. T. Act, 1961, Sri P. R. Kothari, A/r appeared from time to time and explained the return. Necessary details and particulars were filed. The business of the assessee is manufacturing and trading of cosmetics and dental care products as in earlier years. In view of above total income is computed is under:" 98. Unless the aforesaid recital is factually incorrect or the computation is legally wrong, it is not possible to hold that the assessment order was passed without application of mind. On the top of that when the Assessing Officer accepted the contention of the assessee there was no occasio....
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.... are therefore of the firm view that not only did the AO enquire into the issue of taxability of foreign assignment allowance but had consciously applied his mind to the facts made available before him and adopted the view permissible in law. For these reasons, we are of the considered view that the assessment order did not suffer from the error of non-enquiry or non-application of mind or assumption of wrong facts. 14. In the impugned order the ld. CIT placed emphasis on the fact that the allowance in question was received by the assessee from an entity established in India. He further emphasized on the fact that the assessee's employment contract was with Indian company and the contract of the employment which gave rise to the payment in question was executed in India. Accordingly the assessee's right to receive remuneration inter alia including foreign assignment allowance had accrued in India and consequently therefore the assessee was liable to pay tax on such allowance in India. The ld. CIT further observed that the allowance in question was computed in INR denomination which clearly showed that the payment was intended to be made in India. The ld. CIT also found that the ....
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....ection 9(1)(ii) of the Act, which read as follows: "9. (1) The following incomes shall be deemed to accrue or arise in India :- (ii) income which falls under the head "Salaries", if it is earned in India. Explanation.-For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India 16. From the foregoing provision it is quite evident that the income under the head 'Salaries' is deemed to be earned in India only if such income is paid for services rendered in India. In other words, rendering of services to the employer in India is sine qua non for invoking deeming provisions of Section 9(1)(ii) of the Act. In the present case it is not denied by the ld. CIT that for the relevant assessment year the status of the assessee was non-resident because his physical stay in India was less than 182 days. He also did not deny the fact that the services were....
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....che Bank, funds are transferred to the Nostro Account of Axis Bank maintained outside India. d) Upon instruction from IBM, the funds are then transferred from the Nostro Account of Axis Bank maintained outside India to the Axis TCC of the respective employee. 19. From the foregoing, it is evident that the funds were transferred outside India to the foreign currency denominated account of the employer at the express direction of the employer and even the payment towards TCC was made on the instructions of the employer. We therefore do not find any merit in the ld. CIT's finding that the impugned allowance was first received by the assessee in India and thereafter at his instance the amounts were remitted outside India in the form of TCC. 20. Another issue which weighed on the ld. CIT's mind was that the impugned allowance did not suffer any tax in the country of residence i.e. Switzerland and therefore it was a case of double non-taxation which could not be permitted in law. In the first instance we do not find much force in this plank of the ld. CIT's reasoning. The question for determination by the ld. CIT was whether in law the amount received by the assessee for r....
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....tand that the benefit of the CBDT Circular No.13 of 2017 as well as the judgment of the Hon'ble Calcutta High Court was of no help to the assessee. After due consideration of the facts and material on record, we are unable to agree with the ld. CIT's such contention. In the first instance we find that the facts of the case are materially different from the facts involved in the case of Tapas Kumar Bandyopadhyay (supra). In that case the assessee a marine engineer was rendering his services in international waters and his salary from the employer was admittedly deposited in his bank account maintained in India. Further such salary did not suffer any tax in any other country. On these facts, the Tribunal held that the income was chargeable to tax in India since the salary was deposited in bank account maintained in India. In the present case however, as noted in the preceding paragraphs, no money was found deposited in assessee's account maintained in India and the foreign assignment allowance received for services rendered in Switzerland, the due taxes were paid in that country. Moreover, Section 9(1)(ii) makes it abundantly clear that income chargeable under the head 'Salary' co....
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....ived Rs. 51,84,489/- outside India for services rendered outside India . The assessee pleaded that the entire foreign allowance of Rs. 51,84,489/- was not offered to tax in India as the same was received by the assessee outside India for the services rendered outside India which does not form part of the total income u/s 5(2) of the Act. The assessee however offered the entire salary received in India of Rs. 6,77,128/- to tax in India. In the course of assessment proceedings, the assessee submitted a letter dated 24.9.2015 with regard to exemption claimed by him towards foreign assignment allowance, which was paid by crediting the assessee's Travel Currency Card (TCC) . The assessee also furnished a certificate from IBM India Private Limited stating that the assessee had received Rs. 51,84,489/- outside India for rendering services in Switzerland. In the said certificate, it was also mentioned by IBM that taxes to the tune of Rs. 16,04,063/- was deducted at source including on the portion of foreign assignment allowance because the residential status as well as the tax residency of the assessee was not known." 23. With reference to the foregoing facts, the issue for adjudication....
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....Correspondent Banker (ZuercherKantonal Bank, Zurich). e) IBM transfers funds from its EEFC Account from Deutsche Bank to the Nostro Account of Axis Bank (i.eZuercherKantonal Bank) for the purpose of loading / reloading the Axis TCC issued to the assessee who is sent on foreign assignment. f) The employee who is sent on foreign assignment uses the said funds outside India out of monies topped up or credited in his Axis TCC. Hence it could be safely concluded that the first point of receipt for the assessee happens outside India. This money is used by him for his sustenance in Switzerland. Both the accrual and receipt of income happens outside India. Hence the same is outside the ambit of tax as per the provisions of section 5(2) of the Act. The services of the assessee are also utilized only outside India. g) This foreign assignment allowance is duly subjected to tax in the country of Switzerland and the assessee had duly paid the said tax to the Swiss Government. h) The assessee had paid taxes in India in respect of salary received by him in India, which is not in dispute. 7.2. We find that the ld DR had argued that the foreign assignmen....
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....llant received foreign allowances of Rs. 17,27,360/- outside India for the services rendered in Netherlands. As the appellant, qualified as a non-resident during the relevant assessment year and foreign allowances received by the appellant is not liable to tax U/s 5(2) of the Act. The appellant had disclosed total income of Rs. 3,27,910/- excluding the foreign allowances and against this income, the tax of Rs. 48,790/- was paid by the appellant. The employer deducted TDS wrongly at Rs. 6,36,484.65 and appellant also paid self assessment tax at Rs. 4,653/- on account of his interest income from bank deposits. Therefore, the appellant had claimed refund of Rs. 5,92,305/- by filing the return. The learned Assessing Officer submitted that the amount of Rs. 17,27,360/- was received by the appellant in Netherlands from his employment on account of foreign allowances, for which he produced certificate from the employer. The employer was non-resident during the year and provisions of Section 6(1) of the Act is applicable. Therefore, foreign allowances received by him outside the India for services rendered outside India are not liable to be taxed in India U/s 5(2) of the Act. He also relie....
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....y u/s 5(2) of the Act. 7.7. We also find that identical claim of exemption of the assessee was allowed by the ld AO for the Asst Year 2014-15 u/s 143(3) of the Act dated 10.12.2016 after detailed examination of the same and by giving proper findings in the assessment order vide para 5.02 and 5.03. 7.8. In view of the aforesaid findings in the facts and circumstances of the case and by respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld CITA had rightly deleted the addition made on account of disallowance of claim of exemption in respect of foreign assignment allowance received by the assessee outside India. Hence we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, the grounds raised by the revenue are dismissed." 24. From the aforesaid decision rendered by the Coordinate Bench of this Tribunal dated 11.07.2018, we find that the issue involved before us is no longer res integra. We note that the claim of the assessee in the present case for exclusion of foreign assignment allowance, which was accepted by the AO, was in consonance with the view of Ld. CIT(A) in Shri SudiptaMaity's c....
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....uty Commissioner] or the Income-tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A; (ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120; (b) "record" [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matterof any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such ap....
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....quence cannot be deemed[DCM Vs. State of Rajasthan (1996) 2 SCC 449. AIR 1996 SC 2930 (3 judges of Hon'ble Supreme Court) and same view reiterated in State of Karnataka Vs. State of Tamil Nadu (2017) 3 SCC 362. So when we look at Explanation-2, we note that deeming fiction of law that the order of the Assessing Officer is deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue only if in the opinion of the ld. CIT, which necessarily has to be a finding of fact in the following four events. Then legal consequence follows, if not it does not. So, the CIT has to make a finding of fact in the following: (a) the assessment order passed by the Assessing Officer is without inquiry or verification, (b) the Assessing Officer allowed a claim without enquiry, (c) the Assessing Officer passed the order not in accordance with any order, directions or instructions issue by the CBDT u/s 119 of the Act, (d) theAssessing Officer passed the order not in accordance to the decision of the Hon'ble Jurisdictional High Court or the Hon'ble Supreme Court, which is prejudicial to the assessee, which is rendered either in the assessee's case or ....
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....arily made discarding the judicial precedent on the subject. The opinion of the Ld. Pr. CIT has to be reasonable and that of a prudent person instructed in law. Moreover, it has to be kept in mind that an Explanation to substantive section should be read as to harmonize with and clear up any ambiguity in the main section and should not be so construed as to widen the ambit of the section as held by the Hon'ble Supreme Court in Bihta Cooperative Development Cane Marketing Union Ltd. Vs. Bank of Bihar, AIR 1967 SC 389 and M/s. Oblum Electrical Industries Pvt. Ltd., Hyderabad vs. Collector of Customs, Bombay - AIR 1997 SC 3467 at page 3471 and also see Justice G. P. Singh, Principal of Statutory Interpretation 234 Lexus 2016. It has to be kept in mind that while the Commissioner is exercising his revisional jurisdiction over the assessment order, he has to exercise his power in an objective manner and not arbitrarily or subjectively since he is discharging quasi-judicial powers vested in him while doing so. Thus according to us, Explanation (2) inserted by the Parliament u/s. 263 cannot override the main section i.e. sec. 263(1) of the Act. The Ld. CIT can exercise his revisional j....
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....ld that the AO's view cannot be held to be erroneous for want of enquiry. 30. We further find that when confronted with the reasons set out in the SCN, the assessee had led before the ld. CIT sufficient documentary evidence which proved that the SCN had proceeded on assumption of incorrect facts and wrong interpretation of applicable legal provisions. It was also established before the ld. CIT that before completion of assessment, the AO had indeed made enquiries into the foreign assignment allowance and after being satisfied about its non-taxability, the order u/s 143(3) of the Act was passed. On receipt of these objections, though the ld. CIT did not agree with the submissions, we find that ultimately the reasons on which the ld. CIT proceeded to pass the order did not contain any substantive legal or factual material by which he was able to prove that the said explanations suffered from any infirmity. Instead we note that the ld. CIT ultimately merely set aside the assessment order directing AO to pass the order afresh in accordance with law which in our opinion was nothing but giving the AO second innings without establishing that the AO's order was erroneous as well as ....