TaxTMI 
TaxTMI 
2022 (1) TMI 1243
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....T has erred in not appreciating that where a legally permissible view is adopted while passing the Assessment order, the same cannot be considered as erroneous for the purpose of section 263 of the Act; 1.3 The CIT has erred in setting aside the Assessment Order with directions to the learned AO to make a fresh assessment and examine the taxability of the following issues: * Loss on transfer of retail loan portfolio amounting to INR 65,51,06,135; * Loss on sale of loan portfolios to asset reconstruction company amounting to INR 5,62,20,992; * Service tax credit written off amounting to INR 13,88,97,251; and * Disallowance related to Derivative Sales Credit (DSC) amounting to INR 3,68,30,713 Ground no 2 On the facts and in circumstances of the case in law, the learned CIT has erred in initiating proceedings under section 263 of the Act when the original assessment order has been passed under section 143(3) r.w.s. 144C(13) of the Act on the basis of the direction of the DRP. Ground No. 3 Without prejudice to Ground nos 1 & 2, the learned CIT has erred in fact and in circumstances of the case and in law i....
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....d in holding that the learned AO has not verified whether the deduction in respect of the service tax written off amounting to INR 13,88,97,251 is allowable under section 37 of the Act; and 5.2 The CIT erred in holding that the learned AO has not verified whether only unavailed credits of the year under consideration have been allowed or cumulative credits of various years has also been allowed. Ground no 6 Without prejudice to Ground nos 1 & 2 above, the learned CIT has erred in fact and in circumstances of the case and in law in holding that the learned AO has not examined the disallowance relating to DSC and, hence, the same is erroneous and prejudicial to the interest of the Revenue 6.1 The CIT erred in holding that the learned AO has not complied with the directions of the Joint Commissioner of Income-tax for verification of DSC claim of the Appellant; and 6.2 The CIT erred in holding that the learned AO has not verified the facts and the claim of the Appellant regarding the appropriate recovery of the excess DSC paid amounting to GBP 425,123 (INR 3,68,30,713) by Barclays UK Each of the grounds of appeal referred above is s....
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....016. The Assessee filed objection against the said draft order before the DRP-1, Mumbai. 6. On 6th September 2017, the DRP 1, Mumbai passed order under section 144C (5) of the Income? Tax Act 1961. The DRP-1, Mumbai, vide said order, directed the assessing officer to give effect to the directions contained in the said order. Effect to the directions of the DRP is given as under: 7. Adjustments made by the transfer pricing officer;- 7.1 Barclays Bank PLC had a number of international transactions with its associated enterprises. With respect to these transactions, the bank had submitted an audit report in Form No. 3CEB along with the return of income, which was forwarded to the Transfer Pricing Officer for computation of arm's length price vide letter dated 10.03.2016. The Transfer Pricing Officer has passed order under section 92 CA(3) of the Income-tax Act, 1961 dated 31sl October 2016 and made an adjustment of Rs, 83,04,bl,395. The details of adjustments are as under:- Sr. No. International Transaction T.P. Adjustment (Rs.) 1 Adjustment on account of compensation receivable for marketing of derivative products 79,73,03,514 2 ....
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....ty. The remittance made to Barclays UK is in relation to the origination, coordination and client relationship management activities undertaken with clients/prospective clients outside India, in respect of derivative products of the assessee. This payment for the said activities within the Barclays group is termed as Derivative Sales Credit (DSC). Barclays UK is remunerated for these activities as per the global transfer pricing policy followed by Barclays Group. Barclays UK performs the DSC activities in the ordinary course of its business. Further, we wish to submit that Barclays India also receives from Barclays UK the DSC in relation to the origination. Coordination/liaisoning and client relationship management activities undertaken by Barclays India with client/s prospective clients in India requiring exposure in UK or other overseas markets in respect of derivative products of Barclays UK. Accordingly, Barclays India would receive as well as pay DSC to Barclays UK. The revenue in the books of Barclays UK/India is booked on the basis of Estimated DayI P&L ie difference between the value of prospective net cash flows based on the transaction price(i.e the pric....
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....he DRP-1, Mumbai, disputing additions on the above issues. The DRP 1, Mumbai, vide order dated 6'" September 2017, passed under section 144C(5) of the Income Tax Act 1961, has dismissed and rejected all objections raised on the issue. In view of the statutory directions issued under section 144C{5) of the I.I. Act 1961, re computation of DCS expenses, and consequent upward adjustment to the total returned income, as made in the draft order, shall continue. Penalty proceedings initiated on this issue. 9. In view of the order passed under section 144C(1) followed by order passed under section 144C(5) of the I.T. Act 1961, total income, as provided under section 144C(13) read with section 1.43(3) of the Income Tax Act 1961 is computed and assessed as under: Particulars Amount (Rs.) Profits & Gains of Business/Profession as per Profit and Loss Account. -563,809,000 Add; Inadmissible items 5,795,104,378 Less: Admissible Items{without considering deduction under section 36(i)(vii)(a) and section 44C of the Act) -4,524,893,777 Less; Deduction under section 80 G -1,206,122 Add: Total Business Income 705,195,479 Add:....
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....s with provision of bad and doubtful debts. As per notes to the financial statements schedule 18(2), the bank decided not to originate any retail loans pertaining to the retail banking division with effect from 07.12.2011 till the finalisation of a new strategy and focused on servicing the existing retail loans portfolio. Based on a strategic review, during the year, management decided to dispose portfolio comprising of personal instalment loans, business instalment loans, home loans and loans against property. These were sold to unrelated third party banks and not to any Asset Reconstruction Companies. As these loans were purchased by the third party bank, it clearly indicates that these loans were live and recoverable and capable of earning profit. The net loss on account of transfer of the these loans of Rs. 65,51,06,124/- has been debited to the Profit and loss account as loss on disposal of assets. From the records it is seen that the assessing officer had not made any enquiry regarding the loss of Rs.65,51,06,124/- claimed by the assessee. There is no submission of the assessee on record regarding the same except the notes to the financial statements. Further, it is also noti....
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....2) had issued order u/s 144A dt. 13/12/2016 to the AO to verify the derivative Sales Credit (DSC) claim of the Assessee Bank, wherein he observed that no evidence or supporting documents has been produced by the assessee Bank before him to establish its claim that the transactions in respect of the Indian clients actually originated from UK and Barclays Bank PLC UK referred these case to the assessee bank. The JCIT(11)- 1(2), Mumbai has also directed the AO to ask the assessec to furnish the details in respect of Sale of the Derivative Products for A.Y. 2013-14 in respect of Indian clients with details, production Description, Date of Sale, Amount received and Mode of Payment including the Modus Operandi. Further, he has also directed the AO to take into the consideration of the contents of the letters forwarded to him by the ITO (LT)-1(2)(2), Mumbai dated 09.11.2016 & 11. 11.2016 after verification of DSC Payment from the Form 15CA/CB filed the assessee.Ori a perusal of the draft assessment order, it is seen that although the directions in the order u/s 144A has been made a part of the draft order, no cognizance of the actual directions have been taken. The AO has not verified the....
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....r passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under section 263 if it is a stereotype order which simply accepts what the assessec has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim called for. In this case the Assessing Officer merely on the basis of the submissions made by the assessee has passed the assessment order without examining the nature and details of each transactions and the basis of various deductions claimed in the ROt like loss claimed for bad and doubtful debts, the genuineness of the loan portfolio sold to third parties claimed as Bad debts. Further the assessee has sold loan portfolio business as one time sale. The AO has not examined the nature of the said business and has simply accepted the submissions made by the assessee. The assessee has claimed deduction on loss on account of sale of loan to Asset Reconstruction Companies. The nature of such claim is not examined by the A.O. The A.O has allowed deduction u/s 37 for services tax written off without verifying the claim of assessee. The A.O has also failed to examine the incorrect claim of der....
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....neous on the ground that in the circumstances of the case the AO should have made further enquiries before accepting the statements made by the assessee in his return. 11.8. In the case of Arnbica Agro Suppliers 100 TTJ 405(Pune)-No enquiry regarding expenditure etc. Mere filing of explanation does not indicate application of mind-Acceptance of explanation without enquiryRevision justified. 11.9. In the case of Shyarn Telelink Ltd vs ITO(2006) 101 TTJ 387(Del)Failure on the part of the AO to make necessary enquiries on certain important points connected with the assessment would certainly make the order erroneous. 11.10. In the case of ITO vs KJMC Capital Market Services Ltd(2006) 156 Taxman 187(Mum)-Order passed by the AO is rendered erroneous if he initiates an enquiry but abandons same half way or does not make requisite enquiries necessary for examination of claim under relevant provisions of law or does not judicially evaluate results of enquiries, 263 was rightly invoked. 11.11. Thus, the legal contentions of the assessee against the revision u/s.263 are not tenable. 8. Thereafter ld CIT held that each of the issues of assessment have be....
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.... The provisions of section 50B of the Act, any profits and gains arising from slump sale effected in the previous year, shall be chargeable to income tax as 'capital gains' arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place. The term 'slump sale' has been defined in Section 2(42C) of the Act as the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sale. Further, the term 'undertaking' is defined in Explanation 1 to Section 2(19AA) of the Act, to include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole but does not include individual assets or liabilities or any combination thereof not constituting a business activity. In the case of Rohan Software Pvt. Ltd v ITO 304 ITR 314 (An (MUM) it has been held that the assessee had transferred its business including intellectual property, codes, formulae and designs, along with all the rights. However, it did not transfer a....
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....ess asset and the business asset was transferred for a lump sum consideration without any specific value assigned to each asset. This particular asset of the Bank comprising of retails loans portfolio was sold on lump sum consideration and the assessee has not been able to produce the basis of valuation of each asset. For treating a transaction as slump sale ant not itemised sale, one needs to consider the intention of the parties and facts and documents of each transaction. Even if liabilities are not transferred the transaction can be deemed to be a slump sale provided there is a transfer of an undertaking. In the case of a bank, the "retail loan portfolio" is a complete segment in itself. Media reports indicate that in December 2011, Barclays India decided to exit its retail business, a fact which has not been submitted by the assessee before the AO. Coupled with the fact that no valuation report has been furnished and that there is no iternised sale, it ought to have been examined by the AU whether this was one of slump sale. Nonexamination of this issue by the AU is not only erroneous but also prejudicial to the interests of Revenue. 15. Issue 3: Business Loans sold t....
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....le of Derivative Products for A.Y 2013-14 in respect of Indian clients with details, production description, Date of sales, Amount received and Mode of payment including the modus operandi. [it may be noted that no such details have been filed during the course of S.263 proceedings as well]. Further the JCIT had directed the A,O to take into consideration the contents of the letter forwarded to him by 1TO(IT) 1(2)(2) Mumbai and the inputs in his letter dated 09.2016 and 11.11.2016 after verification of DSC payments from FORM No I 5CA/CB filed by the assessee. it is a matter of fact that (i) the AO has not fully complied with the directions of the JCIT: (ii) the A.O has not verified the claim of the assessee with cogent evidences to corroborate that (a) the transaction in respect of Indian clients actually originated from UK and Barclays UK referred these cases to Barclays India, (b) whether Barclays UK actually performed any service in respect of such clients other than merely referring them to the assessee, (c) whatever Services that Barclays UK performed can actually be termed as "technical Services". The submissions of the assessee has been carefully perused the fact remains the....
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....e provisions of section 263 of the Income-tax Act, 1961 (Act), the Principal Commissioner or Commissioner may revise an order passed by the Assessing Officer, if the same is erroneous in so far as it is prejudicial to the interest of the revenue. 1.2. Further, Explanation 1(a) of the Act has clarified the scope of what can be constituted as an order passed by the Assessing Officer, as mentioned below: "Explanation 1. - For the removal of doubts, it is hereby declared that, for the purposes of this sub-section- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (b) (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 1444- (c) (7i) an order made by the Joint Commissioner in exercise of the powers or in the pemformance 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 Genera....
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....g Officer pursuant to the directions of a superior authority, the same could not be the subject matter of revision under section 263 of the Act. 1.6. The appellant submits that in the case of Philips India Ltd. v. Pr, CIT [ I.T. Appeal No 1142 (Kol) of 2016, dated 27-3-2019, the Tribunal has rejected the submission of the Appellant by holding in para 9.1 that the explanation only clarifies the powers that are inherently held by the PCIT under section 263 of the Act. In this regard it is submitted that the Kolkata bench of the Tribunal has not considered the decision of the Jurisdictional HC in the case of Virendra Kumar Jhamb v. N.K. Vohra (supra) as well as the fact that corresponding amendments were made in various sections when section 144C was inserted whereas no such amendment was made in section 263 of the Act. 2. DRP has power to consider all issues and, hence, no jurisdiction of CIT under section 263 of the Act. 2.1. The appellant submits that the order passed by the Assessing Officer merges into the order of the higher authority (DRP) and is deemed to become an order passed by the higher authority. The principle is statutorily accepted in Section....
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....formity of the direction of the DRP. Therefore, the final Assessment order cannot be said to be erroneous. In fact, if the Assessing Officer had made any addition in the final assessment order which were not as per the direction of the DRP, the said assessment order would be held to be invalid and contrary to law. 3.5.The Appellant submits that, after the direction of the DRP, if the Assessing Officer would have made any addition or even any enquiry on the issues raised by the PCIT, the same would be contrary to law as being contrary to section 1 44C(1 3) of the Act. Therefore, there is no question of the PCIT holding that the final assessment Order is erroneous so as to come within the ambit of 263. The Appellant submits that the final assessment order can only be erroneous only when the Assessing Officer has not followed the mandate of section 144C(13) of the Act. 3.6. The Appellant submits that if the AO could not have directly made any change in the final assessment order after the direction of the DRP, then the PCIT also cannot indirectly make any change so as to circumvent the provision of section 144C(13) of the Act. Reliance in this regard is placed on the....
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....thorized to revise orders under section 263 of the Act. This fact is further clarified from the provisions of Section 253(1 )(d) of the Act, which provides for an appeal from the order of the Assessing Officer pursuant to DRP's direction to the ITAT and bars an appeal before the Commissioner of Income-tax (Appeals). Hence, it is submitted that CIT does not hold jurisdiction under Section 263 to revisit the order of the DRP as they are of same rank. 5 In light of the above, we wish to submit that the order passed by the learned CIT under section 263 of the Act on 30 March 2021 is invalid and cannot be sustained in law for the reason that the learned CIT does not have the power to revise the order passed by the Assessing Officer in conformity with the directions of the DRP under section 144C of the Act using his revisionary powers under section 263 of the Act. 11. The Ld.CIT-DR has made following submission :- This is an appeal by the assessee against the order u/s 263 of the CIT. This case was fixed for hearing on 04.10.2021 before the Hon'ble ITAT. The Hon'ble Bench directed the Ld. AR and DR to address it on the short issue of whether proceeding u/....
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....the present case is as under: "Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,--. (c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after 1st June, 1988, the powers of the CIT 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 appeal. 7. The consequence of the said amendment made with retrospective effect is that the powers under s. 263 of the CIT shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the CIT under s. 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred. 8. The question referred is, therefore, answered in the negative, in favour of the Revenue and against the assessee." 5. This ....
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....r directions of the DRP cannot be any different. 11. While though I am not aware of, even if there be any decision of the Hon'ble ITAT on the aspect of initiations of the proceedings u/s 263 in respect of order passed u/s. 143(3) r.w.s 144(C), there are no direct judgments of the High Court on this subject except the decision by Hon'ble Karnataka High Court in the case of Devas Multimedia P. Ltd. V/s. PCIT (2020) 268 Taxman 150, (2019) 111 Taxmann.com 494(Kar). In this decision the Hon'ble Karnataka High Court has held quoting from the head notes that--- No-doubt DRP panel consists of three Commissioners and Principal Commissioner examining or sitting over decision of the DRP may not be appropriate. At the same time, one cannot lose sight off, of a statutory provision like section 263 unless and until section 263 prohibits to examine the final assessment order, pursuant to the DRP decision. One cannot go beyond the statutory provision and so also 'read' or 'add' words by the Courts while interpreting a statutory provision. Time and again, Supreme Court and other Courts have held that in a matter of interpretation of statutory provisions....
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.... this case TPO has not proposed any adjustment. This is contrary to the facts in this case, the above shows that Ld.CIT has exercised his jurisdiction u/s 263 without properly appreciating the assessment order passed. He also seems to be ignoring the fact that assessee has chosen to file objection before the DRP. When the assessment order has been passed pursuant to the direction of DRP, the appeal from the said assessment order does not lie with the ld.CIT(A), but lies directly to the ITAT as per provision of section 253(d). Now, the issue to be addressed in this case is whether, the Ld.CIT has erred in initiating proceedings u/s. 263 of the Act, when the original assessment order has been passed u/s. 143(3) r.w.s. 144C(13), on the basis of the directions of the Dispute Resolution Panel(DRP). 15. We may gainfully refer to the provision of section 263 in this regard. "263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assess....
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....he above explanation does not include the order passed under the direction of DRP u/s. 144C(13) of the Act. The legislature in its wisdom has thought it appropriate to include orders passed by the AO under direction u/s. 144A, but not under direction u/s. 144C(13). This is also in accordance with the provisions of the Act contained in section 144C, which we shall detailed at a later stage. The Ld.CIT in this case seems to be quiet conscious of this fact as he has mentioned on one of the issues, that AO has not properly followed the direction u/s. 144A. But, he is quiet silent and has nowhere mentioned that the final assessment order is passed after the direction of DRP. Admittedly, this is not a case, where draft assessment order is being revised. This is a case where final assessment order passed pursuant to the direction of DRP u/s. 144(3) is being revised by Ld.CIT. Ld. Counsel of the assessee in this regard submits that from the Finance Act, 2009, memorandum explaining the rationale behind the insertion of section 144C of the Act by the Finance Bill, 2009 as also the CBDT Circular No. 5 of 2010 dated 3 June 2010 issued explaining the said insertion, the notes on clauses, etc., ....
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....on is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:- (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),- (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any....
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....panel and the eligible assessee or any other person to the extent technologically feasible; (b) optimizing utilization of the resources through economies of scale and functional specialization; (c) introducing a mechanism with dynamic jurisdiction for issuance of directions by dispute resolution panel (14C) The Central Government may, for the purpose of giving effect to the scheme made under sub-section(14B), by notification in the Official Gazette direct that any of the provisions of this act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notifications. Provided that no direction shall be issued after the 31st day of March, 2022 (14D) Every notification issued under sub-section(14B) and sub-section (14C) shall, as soon as may be after the notification issued, be laid before each House of parliament] (15) For the purposes of this section,- (a) "Dispute Resolution Panel" means a collegium comprising of three Commissioners of Income-tax constituted by the Board for this purpose; (b) "eligible assessee" means,- (i) any person in whose case the....
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....it is a settled legal principle that one cannot do indirectly what one cannot do directly [" Quando aliquidprohibetur ex directo, prohibetur etper obiiquum] If the AO could not have directly made any change in the final assessment order after the direction of the DRP, then the PCIT also cannot indirectly make any change so as to circumvent the provision of section 144C(13) of the Act. Reliance in this regard is placed on the decision of the Apex Court in the case of Supertech Limited v Emerald Court Owner Resident Welfare Association and Ors. (MANU/SC/08643/2021). 19. Further, the scheme of the Act itself does not provide any interference in the direction of the DRP as the law containing section 144C(13) directs that the AO shall pass an order inconformity with the directions of the DRP without providing any further opportunity of being heard to the assessee. When the Act itself provide, that order has to be passed by the AO without providing any opportunity to the assessee pursuant to the direction of the DRP, the direction given in this order u/s. 263 by the Ld.CIT to the AO to call for the details of allowability of various deductions claimed by the assessee, in light of t....
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.... single CIT to a 'colliguem of 3 CIT is concerned, it is settled law that bench comprising single persons is not higher/superior than a collegiums of three persons. Hence, it is abundantly clear that the DRP stands at a higher pedestal than the CIT passing an order alone. 23. Furthermore, we may refer to the decision of Hon'ble Bombay High court in the case of Virendra Kumar Jhamb vs. N.K.Vohra (supra). In this case, the Jurisdictional High Court held that the assessee had approached the DDIT (investigation) under the Direct tax Amnesty Scheme. The CIT had accepted that the taxable income be computed at 8 percent of the total receipts. A second CIT, on scrutiny and verification of the assesses records, found the decision of the earlier CIT to be fair and justifiable. A subsequent CIT, sought to revise the order under section 263, and tax income at 9 percent of the receipts. The Bombay High Court inter alia held that the assessment orders were solely based on the directives of the earlier CITs, and the same could not be revised by the subsequent CIT under section 263. 24. In light of the above discussion and case laws, the case laws referred by the Ld.CIT-DR are not applicable....