TaxTMI 
TaxTMI 
2024 (9) TMI 959
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....ct, 1961 ('the Act') ['impugned order'] is illegal and bad in law. 1.1. That on the facts and circumstances of the case and in law, the impugned assessment order having been passed not only in gross violation of principles of natural justice but also the mandatory procedure prescribed in section 144B of the Act is illegal, bad in law and liable to be quashed. 1.2. That on the facts and circumstances of the case and in law, the impugned assessment having been completed without passing and serving upon the appellant, the draft assessment order as per provisions of clause (xiv)(b) of sub-section (I) to section 144B of the Act, is non-est, illegal, bad in law and liable to be quashed. 1.3. That the impugned assessment order [including draft order passed by National Faceless Assessment Centre (NF AC) under section 144C] having been passed without allowing personal hearing (either physically or virtually), in gross violation of mandatory provisions of the Act and principles of natural justice, is without jurisdiction, illegal, bad in law and liable to be quashed. 1.4. That on the facts and circumstances of the case, the impugned final a....
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....xisting non-resident shareholders. 4.5. That the assessing officer erred on facts and in law in not appreciating that similar capital was received by the appellant from same non-resident shareholder in preceding year(s) which have been accepted as genuine after due examination in completed scrutiny assessments. Re: Disallowance of PF/ ESI Contribution 5. That the assessing officer erred on facts and in law in disallowing an amount of Rs. 54,031 under section 36( 1 )(va) of the Act, being employees' contribution to Employee State Insurance Fund ("ES),') and other welfare funds on the ground that the same was deposited beyond the time specified under relevant statute. 5.1. That the assessing officer erred on facts and in law not appreciating that employees' contribution had been deposited before the due date of filing return of income as prescribed under section 139(1) of the Act and the same is, therefore, allowable as deduction. 5.2. That the assessing officer erred on facts and in law in making the aforesaid disallowance without considering the legal position/ judicial pronouncements, and in gross violation of binding direct....
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.... of various proposed additions/disallowances. Ld. DRP gave a direction to Assessing Officer to record reasons for valuation and pass speaking/reasoned order in this regard and also directed to restrict the TP adjustment as per rectification order passed u/s 154 of the Act and directed the Assessing Officer to consider the evidences and submissions filed by the assessee with regard to addition u/s 68 of the Act. 8. After considering the directions of the ld. DRP, final assessment order was passed by the jurisdictional Assessing Officer (JAO) on 29.04.2022 assessing the total income of the assessee at Rs. 146,19,11,543/-. 9. Aggrieved with the above order, assessee is in appeal before us. 10. At the time of hearing, the assessee first pressed the jurisdictional issues raised by the assessee in grounds no.1 to 2.1 and also made submissions alongwith filed a synopsis. The same is reproduced as under :- 11. It is respectfully submitted that the assessment completed under section 143(3)/ 144C of the Act is illegal and bad in law since the same has been passed in gross violation of provisions of sections 144B, 144C of the Act as also principles of natural justice inasmuc....
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....aking into consideration relevant information/ documents submitted, mandated to pass draft assessment order either accepting the income declared in return of income or making variation to the said income and forward the copy of such draft assessment order to the NFAC. (b) Thereafter, the NFAC, in terms of clause (xvi) of sub-section (1) to section 144B of the Act, is, upon receipt of such draft order, mandated to examine the same in accordance with the risk management strategy and then, to either: a) finalise the assessment, in case no variation is proposed which is prejudicial to the interest of the assessee, by passing and serving such final assessment order accompanied with notice of demand specifying the amount payable along with notice for initiating of penalty proceedings, if any, to the assessee; or b) provide an opportunity to the assessee, in case any variation is proposed, by serving a notice directing the assessee to show-cause as to why the proposed variation should not be made; or c) assign the draft assessment order to the review unit. (c) That thereafter, it is only in cases where no response to the show-cause notice is re....
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.... 3.1. The record shows that, the assessee had claimed exemptions under Section 11/12 of the Act, and thus, declared its income in the relevant AY i.e., 2018-2019, as ―Nil. 3.2. The Assessing Officer (in short 'AO'), via the impugned assessment order dated 15.04.2021, has made an addition of Rs. 75,79,981/- to the taxable income of the assessee. Thus, the assessee has been assessed at Rs. 75,79,980/- (rounded off). 3.3. In view of this, it is evident that variation was made to declared taxable income of the assessee which, as noticed above, was Nil, albeit, without issuance of a show cause notice-cum-draft assessment order. Admittedly, the assessee had no opportunity to respond to the additions made. 4. Given these admitted circumstances, the impugned assessment order as also the consequential notices, issued under Section 156 and 270A of the Act, dated 15.04.2021, would have to be set aside. It is ordered accordingly. 4.1. Liberty, however, is granted to the revenue to take next steps in the matter, in accordance with the law. 5. The writ petition and the pending applications are disposed of in the aforesaid terms." (emphas....
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....3,24,98,451/- and Rs. 3,79,58,450/-, both under Section 68 of the Act. In the petition, in one of the grounds there is a specific allegation that there is not even a whisper of these additions either in the alleged draft assessment order or in any of the notices issued in the course of assessment proceedings and no opportunity whatsoever was given to petitioner to file its objections against these additions. In the affidavit in reply of respondent, there is no denial of this fact. In the affidavit in reply, the affiant has gone on the merits of the two additions but does not deny the fact that neither the alleged draft assessment order or any of the notices have not even referred to this proposed additions under Section 68 of the Act. Issuance of show cause notice is the preliminary step which is required to be undertaken. The purpose of show cause notice is to enable a party to effectively deal with the case made out by respondent (Om Shri Jigar Association Vs. Union of India) 1 Therefore, on this ground also the impugned order is required to be set aside. 5 In our view, having heard Mr. Syal and Mr. Pinto and having considered the petition and the affidavit in reply, the....
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.... heard is non-est, illegal and bad in law. 22. On the issue of denial of opportunity of hearing, specific attention is invited to the ruling of the jurisdictional Delhi High Court in the case of Bharat Aluminium Company Ltd. vs. Union of India [2022] 134 taxmann.com 187 (Del), wherein in the context of section 144B of the Act, after exhaustively analyzing the scheme of faceless assessment, the Hon'ble Court, specifically observed that grant of personal hearing is, in case of a specific request to that effect having been made by the assessee, mandatory and not discretionary. 23. The Gujarat High Court in the case of Dr. K R Shroff Foundation v. ACIT: R/Special Civil Application No. 14779 of 2021 dated 11.03.2022 emphasized on the effective and real opportunity of hearing to be granted to the assessee before conclusion of assessment. The Court was pleased to quash the assessment order that resulted in demand of Rs. 633.50 crores over disrupted VC hearing provided prior to completion of assessment. 24. Attention is also invited to the observations Sanjay Aggarwal vs National Faceless Assessment Centre, Delhi: [2021] 436 ITR 180 (Del): "Conclusion: ....
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..../Income Tax Officer, Delhi [WP(L) 11040/2021; decided on 30.07.2021] (Bom) * NainaLal Kidwai vs. National Faceless Assessment Centre [WP(C) 5775/2021; decided on 03.06.2021] (Del) * Ritnand Balved Education Foundation (Umbrella Organisation of Amity Group of Institutions) vs. National Faceless Assessment Centre &Ors. [WP(C) 5537/2021; decided on 27.05.2021] (Del) * Antony Alphonse Kevin Alphonse vs. ITO, National E-Assessment Centre [W.P. No.8379-2021; decided on 01.04.2021] (Mad) * Magick Woods Exports Private Limited vs. National E-Assessment Centre [W.P. No.10693-2021; decided on 28.04.2021] (Mad) * Orissa Stevedores Ltd. vs. Union of India [WP(C) No.19402/2021; decided on 08.07.2021] (Ori) 26. In view of the aforesaid, the impugned assessment completed without providing any opportunity, much less adequate opportunity, of being heard to the appellant calls for being quashed at the threshold. Re (c): Impugned assessment order passed by JAO instead of NFAC bad in law 27. In terms of mandatory provisions of section 144B of the Act, the assessment is required to be in a "faceless manner"; the notices are require....
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.... .............. (xiv) the assessment unit shall, after taking into account all the relevant material available on the record make in writing, a draft assessment order or, in a case where intimation referred to in clause (xiii) is received from the National Faceless Assessment Centre, make in writing, a draft assessment order to the best of its judgment, either accepting the income or sum payable by, or sum refundable to, the assessee as per his return or making variation to the said income or sum, and send a copy of such order to the National Faceless Assessment Centre ....................... (xxx) the assessment unit shall in conformity of the directions issued by the Dispute Resolution Panel under sub-section (5) of section 144C, prepare a draft assessment order in accordance with sub-section (13) of section 144C and send a copy of such order to the National Faceless Assessment Centre; (xxxi) the National Faceless Assessment Centre shall, upon receipt of draft assessment order referred to in clause (xxx), finalise the assessment within the time allowed under sub-section (13) of section 144C and serve a copy of such order and notice for ....
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....nd/ or any other communication to the appellant. 35. Being so, the impugned order passed by Asst. Commissioner of Income Tax, Circle 7(1) and not by NFAC is, in our respectful submissions, beyond jurisdiction, illegal and bad in law being passed by officer not having jurisdiction. Re (d): Final assessment order having been passed in blatant violation of specific directions issued by the DRP- invalid and bad in law 36. Strictly without prejudice to the aforesaid, it is further pertinent to note that the impugned assessment order has been passed by the assessing officer without following the binding directions of the DRP as is explained hereunder: (a) The DRP had held that draft assessment order under section 144C(1) was passed in breach of the provisions of section 144B of the Act and directed the assessing officer to spell out the reasons for the same in the final assessment order. The DRP, in para 3.1.1 of DRP order observed that ".....An order u/s 144C was issued subsequent to the aforesaid notice vide order dated 21.09.2021, breeching the provisions of section 144B of the Act. The Panel directs the AO to spell out the reasons in this ....
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....d: IT(TP)A 823/Bang/2017 (Bang Trib.) * Yokogawa India Ltd vs. ACIT: ITA(TP) 1715/Bang/2016 (Bang Trib.) * Dongfang Electric (India) Pvt Ltd: ITA No.2356/Kol/2017 (Kol Trib.) 39. For the aforesaid reason, too, the final assessment order passed is beyond jurisdiction, illegal and bad in law and calls for being quashed at the threshold. Re (e): Non consideration of submissions/ evidences- violative of principles of natural justice 40. It is respectfully submitted that the additions/ disallowances have been made by the assessing officer without considering the relevant submissions and detailed documentary evidences placed on record by the appellant, despite the specific directions of the DRP. Further, the documentary evidences have not been controverted by the assessing officer before making the additions. 41. In fact, the appellant had, during the course of assessment proceedings even offered that if any additional document/ information is required, the appellant would be pleased to submit the same [refer letters dated 11.12.2020 and 10.09.2021] however, no further requirement was raised, and the assessing officer proceeded to pas....
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....ment proceedings (prior to passing of draft assessment order): 46. During the course of assessment proceedings before NFAC, the appellant, vide replies dated 11.12.2020[refer pages 53-88 of paper-book] and 10.09.2021[refer pages 92-96 of paper-book] duly submitted the following information/ documents: - The shares were issued to the existing shareholders; the funds/ money aggregating to Rs. 134.99 crores was received from the existing non-resident holding company only; - Complete details such as name, address and PAN of the shareholders, face-value and premium per shares, number of shares, date of issue, etc., were duly submitted; - Valuation reports justifying the price of the shares issued on 30.06.2017 (Rs. 18.15 shares) and on 27.02.2018 (Rs. 20.43 per shares) were duly placed on record; - The history of issuance of shares to the said shareholders in preceding years was duly provided. 47. Also, the case of the assessee was also referred to the Transfer Pricing Officer (TPO) under section 92CA of the Act. During such proceedings, - the TPO, vide notice dated 25.02.2021, inter-alia, required the assessee to submit the....
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....re at Arm's Length (barring a few transactions). In addition, the TPO had also vide notice dated 25.02.2021 asked assessee to furnish details of equity shares issued by assessee. Assessee had filed its response on 07.07.2021 and has furnished the details relating to equity shares issued by assessee to its shareholders. It is accordingly pleaded that the identity of the foreign entity has duly been examined by the TPO vide analysing the related party transactions and that the TPO has drawn no adverse inference in reference to the share capital related party even after specific enquiry in this regard. Therefore, it can be deemed that the nature of transaction also stands verified by the TPO as well. It is also argued that there was no requirement to prove creditworthiness of shareholders u/s 68 where shareholder is non- resident. Further, under proviso to section 68, where the sum credited relates to share application money, share capital, share premium, the assessee shall be required to furnish source of source as well. However, it is clear that the proviso is applicable only to the person who is resident under the provisions of the Act. The above analysis of the provisions of s....
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.... 56. The aforesaid addition of Rs. 134.99 crores made under section 68 of the Act is, it is submitted, beyond jurisdiction, illegal and bad in law for the reason explained hereunder: Re (a): Addition in gross violation of binding directions of the DRP 57. As explained supra, the DRP duly considered the submissions of the assessee including that the assessee is not required to prove source of source in respect of share capital received from the non-resident shareholder and held that the assessing officer had not considered the evidence on record. Thus, the assessing officer was directed to consider the documentary evidence and pass a speaking order. 58. The assessing officer, however, in violation of the aforesaid directions verbatim repeated the contention in the draft order, while passing the impugned final assessment order, and hence the addition so made is beyond jurisdiction, illegal and bad in law. Legal position in this regard is explained supra and not repeated herein for sake of brevity. 59. In view of the aforesaid, the impugned addition calls for being deleted on the said ground alone. Re (b): Share capital from existing n....
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....hat in terms of aforesaid provisions of section 68 of the Act the primary onus to explain the nature and source of the amount found credited is on the assessee. The expression `nature' encompasses bringing on record evidence about nature of the receipt, be it share application money, loan, advance, etc. The expression 'source' envisages establishing the identity and creditworthiness of the source/ person from whom the amount is received. However, once the assessee furnishes reasonable explanation, the onus, it is trite law, shifts to the Revenue. 65. The Courts have in various decisions summarized hereunder repeatedly held that where the assessee led evidence to prove the identity of the creditors and furnished confirmation letters indicating their PAN/GIRs, etc., the onus placed on the assessee was discharged and no addition could be made to the income of the assessee in terms of section 68 of the Act: * PCIT v. Adamine Construction (P.) Ltd.: [2018] 99 taxmann.com 45 (SC) : Where High Court confirmed Tribunal's order deleting addition made to assessee's income under section 68 on the ground that assessee had discharged initial burden cast upon it by providing ne....
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....enable the same to be treated as undisclosed income of the assessee. * Further reliance is made on the decision of Hon'ble Madras High Court in the case of CIT v. Victory Spinning Mills Ltd.: 228 Taxman 69, wherein it has been held that addition under section 68 of the Act could not be made where the investors had accepted the investment made in the assessee company and necessary documents evidencing share applicants' names and identity were on record. * Recently, the Delhi Bench of the Tribunal in the case of ACIT v. Enrish Agro Food Producs (P) Ltd.: [2022] 217 TTJ 815 dated 29.04.2022 held that addition under section 68 of the Act qua share capital is not sustainable whether the assessee has duly filed Form PAS 3, confirmation, statement of back of subscriber, copy of PPAN card, copy of IT return etc. * To the similar effect are the following decisions: * Orissa Corporation (P) Limited: 159 ITR 78 (SC) * CIT v. Dolphin Canpack Ltd.: 283 ITR 190 (Del.) * CIT v. Illac Investment (P) Ltd.: 287 ITR 135 (Del.) * CIT v. Oasis Hospitalities P. Ltd: 333 ITR 119 (Del.) * CIT v. Kamdhenu Steel and Alloys Ltd: 361 ITR ....
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....om the coffers of the assessee. 67. On perusal of the aforesaid, it would be noticed that the initial burden to satisfy the ingredients of section 68 of the Act is on the assessee and once the primary onus is discharged and there is nothing to controvert the evidence placed on record by the assessee, no addition can be made by the assessing officer under the said section. 68. In the facts of present case, no addition should have been made under section 68 of the Act since the assessee had, during the course of assessment proceedings, discharged the primary onus by placing on record various contemporaneous and unrebutted/ uncontroverted documentary evidence(s) in support of the share capital monies received from existing shareholders, as detailed hereunder: i. It was duly explained that the share capital (including premium) have been received by the appellant from its non-resident holding company which holds the entire share capital even prior to the issue under dispute. During the relevant year, the appellant had made right issue of shares which has been subscribed by the existing shareholder; the shareholding ratio has not changed even after such fresh i....
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....e thereto, the appellant vide reply dated 29.08.2016 duly submitted the details of the share application money received alongwith Form-2 filed for allotment of shares [refer pages 167-177 of paperbook]. * Subsequently, on further enquiry in raised the appellant vide reply dated 07.09.2016 duly placed on record the valuation report towards issuance of shares, copy of RBI approval and the relevant remittance certificates (FIRCs) [refer pages 178-201 of paperbook]. After considering the aforesaid documents and evidences, the assessing officer vide order dated 23.12.2016 passed under section 143(3) of the Act accepted the returned income without any adjustments/ modifications, thereby, accepting the genuineness of the share capital, identity and creditworthiness of the shareholders. Thus, the nature and source of the capital stood accepted [refer pages 202-205 of paperbook]. It is pertinent to mention that during the relevant year, the appellant has received the share capital, from the said existing shareholders only, which is cannot thus be doubted without any cogent basis. vii. The receipt of impugned capital was also examined by the TPO and was ac....
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....t the identity of the non-resident remitter and flow/ source of funds stood established through FIPB approval and FIRCs issued by the authorized dealer/ RBI. The relevant observations of the Tribunal as under: "11. We have heard rival contentions and perused the material available on record. The first and foremost question to be decided is whether on the basis of material furnished by the assessee and available on the record, the assessee has discharged its onus as cast by s. 68 in terms of identity and creditworthiness of the shareholders and genuineness of the transaction. The availability of balance sheet, certificate of incorporation, confirmations and certificates of good standing etc. filed by the assessee in respect of shareholders establish that they are non-resident entities, having independent and legal existence. The moneys have come to assessee through banking channels as is evident from FIRC, which also mentions the purpose of remittance and also the particulars of the remitting bank. FIPB approval that too with a liberty to collect share capital up to Rs. 600 crores and ROC compliance etc. clearly indicate the stand of the assessee. In our considered view, th....
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....d by the Board, particularly by allowing the assessee to raise further capital without approaching the FIPB. The transactions are through banking channels. Thus, the gamut of evidence does not leave any doubt in the discharge of primary burden of the assessee. On the issue CBDT circular and Finlay Corporation Ltd. Judgment (supra) also we are in agreement with the learned counsel for the assessee that in these circumstances of the case, moneys remitted by non-residents through banking channel outside India have to be held as capital receipts, not exigible to tax and cannot be treated as deemed income on the fictions created by ss. 68 and 69 of the Act. In consideration of all these observations, we are inclined to hold that the share application money as raised in the grounds of appeal cannot be held as non-genuine and added as income of the assessee under s. 68 of the Act. Consequently, additions made on this count as raised in grounds of appeal are deleted. Assessee's grounds of appeal on this issue are allowed." (emphasis supplied) The aforesaid decision of the Tribunal has been affirmed by the Delhi High Court in the case of CIT v. Russian Technology Centre Pvt. Lt....
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.... paper book) - Letters of Mauritius Revenue Authorities (attached as Annexure 10a to 10i); - Bank Statements (attached as Annexure 11a to 11h) Additionally, to further establish the identity and genuineness of the shareholding entities, the Certificate of Incorporation and Tax Residency Certificates of each of the said entities were also furnished by the Assessee. The Copies of the same are attached as Annexure 12a to 12i and 13a to 13i respectively. Further, we observed that the Foreign Investment Promotion Board („FIPB‟), Ministry of Finance, Government of India has also granted approval in respect of such entities, which itself establishes the identity and genuineness of such shareholders. Copy of FIPB application made by the assessee and approval is placed on record as per Annexure 14 and 15 respectively. 2.34 As per our considered view, the aforesaid documents clearly establishes the identity and genuineness of the shareholders, and in any case the letters issued by Mauritius Revenue Authorities to the Foreign Tax Division, categorically prove that aforesaid parties are tax residents of Mauritius and hence the identity and genuin....
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....viso to u/s.68 inserted w.e.f. asst. yr. 2013-14. According to the said proviso, if an assessee company, in which public are not substantially interested, receives money by way of share capital, then the source of funds of resident shareholder has to be established by the assessee in order to get out of the kin of the deeming provision under s. 68. Hence, the proviso talks of the source being established only when the shareholder is a resident of India. There is no such requirement if shareholder is a non-resident. Therefore, the creditworthiness of the shareholders, if he is a non-resident, does not have to be established by the assessee in respect of remittance received by him." 74. Attention is also invited to the decision of the Mumbai Bench of the Tribunal in the case of Hinduja Realty Ventures Ltd v. DCIT: ITA No.1090 & 2569/Mum/2019. In that case, M/s. Rabna Holding Ltd ("RHL"), a Mauritius based entity, a group company of Hinduja group had invested in share capital of the assessee company at a premium of Rs. 4990 per share. RHL had received loan from M/s. Amas Ltd, a company incorporated in Bahamas. The loan was used to make investment in shares of the assessee com....
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....ted the disallowance. 81. In this regard, it is respectfully submitted that the aforesaid issue is squarely covered in favour of the appellant by the following judgements: * CIT v. AlomExtrustions Ltd.: 319 ITR 306 (SC) * CIT vs. AIMIL Limited: 321 ITR 508 (Del.) * CIT v. Dharmendra Sharma: 297 ITR 320 (Del.) * Pr. CIT vs. Pro Interactive Service (India) Pvt. Ltd. [ITA 983/2018; decided on 10.09.2018] (Del. HC) * Pr. CIT vs. Planman Consulting Pvt. Ltd. [ITA 1221/2018; decided on 02.11.2018] (Del. HC) * Spectrum Consultants India (P) Ltd. v. CIT: 215 Taxman 597 (Kar.) * CIT v. Kichha Sugar Company Ltd.: ITA No.50 of 2009 (Utt.) * CIT vs. Ghatge Patil Transports Ltd : 368 ITR 749 (Bom.) * S.R Batliboi& Co. vs ACIT : 100 taxmann.com 328 (Cal.) * Sagun foundry (P.) Ltd. vs. CIT : 291 CTR 557 (All.) * Pr. CIT vs. Rajasthan State Beverages Corpn. Ltd. 250 Taxman 32 (Raj) - Revenue's SLP dismissed - reported @ 250 Taxman 16 (SC) * CIT v. Lakhani Rubber Works: 326 ITR 415 (P&H) * Hitech India (P.) Ltd. vs. Union of India: 227 ITR 446 (AP) 82. It is pertine....
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.... Revenue argued the matter and filed the written submissions which are reproduced below :- "After the introduction of faceless assessment scheme, lot of legislative changes were also made in the Income Tax Act, for example till 31.03.2022 the NeAC was mandated to pass all the assessment orders. From 01.04.2022, the Act has been amended and instead of NeAC, assessment order was required to be passed by the faceless AO or the jurisdictional AO and requisite amendment has been made in the Act. From 01.04.2022 section 144B was amended and the NeAC was no longer remained the AO and it was given the task of coordination. The amended provisions have been discussed in detail during the course of physical hearing. Further, after the receipt of DRP directions, the NeAC was required only to ensure that the AO receives the DRP directions and passed the orders in line with the provisions of section 144C(13 r.w.s section 144B xxix. Also section 144C(8) has also been introduced in the Act and the legislature authorized the Pr. CCIT or the Pr. DG of National Faceless Assessment Center to transfer the case from any AO at any stage of the assessment with prior approval of the board. Thus as....
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....ed due opportunity to the assessee. In the draft assessment order, the assessee response dated 10.09.2021 has been duly considered, as evident from the order. Thus the assessee was duly provided opportunity to submit the documents and its reply which has been duly considered by the AO. So it cannot be said that no opportunity was provided to assessee. The assessee main grievance is that show cause notice u/s 144B 1 (xvi)b was not served. The assessee has mentioned in Ground of Appeal no. 1.2 that draft assessment order, as per provisions of section 144 B (1) (xvi) has not been served on the assessee. The assessee contentions are without any basis, incorrect and also misleading. At the outset, it is submitted that assessee is "eligible assessee" as per section 144C (15) (b) of the I.T Act, and this fact is not disputed. As the assessee, is eligible assessee, it is covered under section 144C of the I.T Act. For the assessee covered under section 144C, draft assessment order is required to be forwarded to the eligible assessee, if the AO proposes a variation, which is prejudicial to the interest of such assessee. For ready reference, the provision of section 144C (1) is repro....
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.... Though the opportunity was provided but still even if for a moment assessee's ground is accepted for speculative purposes, even then it is humbly submitted that this issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of NeAC Faceless Assessment Center Vs Automotive Manufacture Pvt. Ltd. in Civil no.1829 of 2023 and other appeals like DCIT and other vs. Abacus Real Estate Pvt. Ltd. in Civil Appeal no. 1830 of 2023. On identical issue, violation of 144B(xxvi) the Hon'ble Supreme Court has remanded the matter back to the AO and the relevant extract of the facts of the case and decision of the Supreme Court is reproduced below: The facts of the case are identical to the assessee's case and for ready reference are reproduced below 2. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of judicature at Bombay in Writ Petition (L) No. 16281/2021, by which the High Court in exercise of powers under Article 226 of the Constitution of India has set aside the Assessment Order declaring it as non est as the mandatory requirement under Section 144B of the Income Tax Act, 1961 f....
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....present case was also passed immediately after launch of faceless scheme and the directions of the Hon'ble Supreme Courts on identical issues I facts is fully binding on the Hon'ble Tribunal. [2] On ground no. 2: Personal hearing not provided to the assessee. As it is proved from the above discussion that due opportunity was provided to the assessee and its reply I contentions was duly considered in the draft assessment order /final order, but still the assessee has raised the baseless allegations/ ground that personal hearing has not been provided to the assessee. The assessee's case, indisputably is covered under the section 144 C of the IT Act and it is submitted that, after the receipt of the DRP directions, no personal hearing is required to be given by the AO, in line with section 144C(13) of the IT Act and accordingly no personal hearing was provided. Further it is fully established in the case that assessee was given reasonable opportunity to represent its case till passing of such of draft assessment order. Also, as the assessee contentions are duly considered, accordingly no prejudice is caused if personal hearing is not provided whi....
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....hich has been duly demonstrated to the Hon'ble Bench by referring to the various provisions of section 144B as applicable before 31.03.2022. From 01.04.2022, the provision of section 144B(1) has been amended and after that the assessment order is passed by the respective AO i.e. faceless Assessing Officer (FAO) or Jurisdictional Assessing Officer (JAO). The reference is also invited to provision of section 144B(8) of the IT Act introduced from 01.04.2022 which for ready reference is reproduced below: 8) Notwithstanding anything contained in sub-section (1) or sub-section (2), the Principal Chief Commissioner or the Principal Director General, as the case may be, in-charge of National Faceless Assessment Centre may, at any stage of the assessment, if considered necessary, transfer the case to the Assessing Officer having jurisdiction over such case, with the prior approval of the Board.] Thus in line with the provision of section 144C(8) with the approval of the board, the assessee case was duly transferred on 15.04.2022 from faceless AO to the jurisdictional AO and the same has been duly mentioned in the case history noting, a copy of which has already been gi....
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....AC AO had given an opportunity to the assessee to furnish the documents. However, as stated above, because of change in the provision of section 1448 of IT Act, the case was duly transferred to the jurisdiction AO, who has no previous idea about the assessment proceedings in the case. However it is pointed out, that, even during the DRP stage and even after providing opportunity by AO, the assessee could not submit any evidence with respect to bank statement of assessee and also about sources of funds contributed. Thus till the completion of assessment proceedings, the assessee couldn't file the complete documents to prove credit worthiness of the investor company. Moreover, the AO in this final order has again stated the same facts that the assessee has failed to prove the conditions stipulated in section 68 of the I.T act and made additions. In fact, it appears that the assessee is raising jurisdictional grounds only to hide its failure in submitting the documents to prove credit worthiness of the investors companies and genuineness of transactions. (E) DRP Directions Fully Followed By AO: It is submitted that the AO took the cognizance of the DRP objections....
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....passed more detailed order but one must consider the fact that because of recent launch of faceless regime at that time and the departmental officer were also new to faceless regime, the AO had passed an order which was passed in full compliance of the DRP directions. The fact of recent launch of faceless regime, has been duly acknowledged by Hon'ble Supreme Court also. (F) Without prejudiced to the fact that the AO has passed the order in compliance with the DRP directions, even then for a moment, for speculative purposes, the Hon'ble Bench accepts the assessee's contention that the AO should have passed more speaking order and somehow has not fully followed the DRP directions, but still the department case is fully covered by the Decision of the Hon'ble coordinate bench in the case of Hitachi Astemo Haryana (P) Ltd VS DCIT Circle 22(2) Delhi, in ITA no. 100S/Delhi/22. The facts of the Hitachi Astemo case are that the AO has not completely followed the DRP directions and for making additions in the final order has relied on the additions in draft assessment order. The assessee has raised the similar ground of AO not following the directions of the DRP comp....
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....ity, the above cases are not discussed in detail. In fact, reference is made to the decision of_Hon'ble Karnataka High Court in the case of TT Steel Service India Pvt. Ltd. 137 taxmann.com 151 (Karnataka) (2022) wherein the Hon'ble High Court considered the order passed by the AO as arbitrary, illegal and without jurisdiction or authority of law. For ready reference the relevant extract of the order of Hon'ble High Court is reproduced below:- 7. As rightly contended by the learned counsel for the petitioner, the undisputed material on record clearly indicates that in response to the draft Assessment Order dated 29-9-2021 issued to the petitioner, petitioner submitted objections before the DR? on 28-10-2021, within the prescribed period and intimated the same to the Assessing Officer on 15-11-2021 pursuant to clarification sought for by the Assessing Officer on 12-11-2021; the explanation offered by the petitioner as regards his inability and omission to file objections with the Assessing Officer earlier in addition to the DRP merits acceptance, particularly in view of the Government Orders, circulars etc. as well as the orders of the Apex Courts extend....
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....prayed that the same should be followed. 24. Before parting, we wish to place on record our deep concern on the conduct of the two Benches of the Tribunal deciding appeals in the cases of IVRCL Infrastructures & Projects Ltd. (supra) & Techni Bharathi Ltd. (supra). After noticing the decision of a co-ordinate Bench in the present case, they still thought it fit to proceed to take a view totally contrary to the view taken in the earlier judgment, thereby creating a judicial uncertainty with regard to the declaration of law involved on an identical issue in respect of the same Exemption Notification. It needs to be emphasised that if a Bench of a Tribunal, in identical fact-situation, is permitted to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on earlier occasion, that will be destructive of the institutional integrity itself. What is important is the Tribunal as an institution and not the personality of the members constituting it. If a Bench of the Tribunal wishes to take a view different from the one taken by the earlier Bench, the propriety demands that it should place the matter before the President of the Tribunal so....
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....lobal one India Pvt. Ltd. Vs. DCIT in ITA No. 1980/Del/2004 (Delhi Tribunal) : this case was duly considered by Hon'ble Delhi Tribunal in recent decision of Hitachi Astemo case (cited supra) (para 4) and for the sake of brevity, the facts are not repeated. (2) ESPN Star Sports Mauritius SNCET Companies vs. UOI 388 ITR 383 (Delhi) : The facts of the case are clearly distinguishable as in this case the Assessing Officer disagreed with the binding order of the DRP. In fact, as mentioned in para 31 of the Hon'ble High Court order, the AO has also chosen to label the order of the DRP is invalid and refused to follow the DRP directions. In the instant case, the AO has followed the DRP directions. (3) I.A.R. System Aktiebolag Vs. DCIT 152 taxmann.com 626 (Mumbai Tribunal)(2023) : it is a Mumbai ITAT order and as mentioned in para 18, the AO in that case has taken a divergent view that the DRP directions and not followed the DRP directions of treating the receipt as FTS and passed his own assessment order against the directions of the DRP on the basis of draft order. Further, the assessee in that case, has relied on the decisions of Hon'ble Bangalore ITAT in t....
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....s held that duty of the Tribunal does not end by merely cancelling the assessment orders and not issuing any further direction of rectifications of the errors. Being pertinent the relevant extract of the decision is reproduced below: 13. From a fair reading of section 25A it appears that the ITO is bound to hold an inquiry into the claim of partition if it is made by or on behalf of any member of the HUF which is being assessed hitherto as such and record a finding thereon. If no such finding is recorded, sub-section (3) of section 25A becomes clearly attracted. When a claim is made in time and the assessment is made on the HUF without holding an inquiry as contemplated by section 25A(1), the assessment is liable to be set aside in appeal as it is in clear violation of the procedure prescribed for that purpose. The Tribunal was, therefore, right in holding that the assessments in question were liable to be set aside as there was no compliance with section 25A(l). It is, however, difficult to agree with the submission made on behalf of the assessee that the duty of the Tribunal ends with making a declaration that the assessments are illegal and it has no duty to issue any f....
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.... ought to have accepted the submission made by the Department Representative as quoted in para 16.2 of its order and the matter ought to have been restored to the file of the Assessing Officer so that appropriate reference could be made to the TPO. It would there be upto the authorities and the Commissioner concerned to consider the matter in terms of Sub- Section (1) of Section 92CA of the Act. (M) Reliance is also placed on the decision of Hon'ble Supreme Court of India in the case of M. Pirai Choodi v. ITO (2012) 20 taxmann.com. 733 (SC) wherein the Hon'ble Supreme Court set aside the order of the Hon'ble High Court which quashed the entire assessment proceedings because opportunity to cross examine was not granted to the assessee. In this case, the Hon'ble Supreme Court has held that the Hon'ble High Court should not have quashed the entire assessment proceedings and instead should have directed the AO to grant an opportunity to the assessee to cross examine the concern witnesses. By applying the ratio laid down by the Hon'ble Supreme Court, it is humbly stated that the entire proceedings should not be quashed and if the Hon'ble bench holds ....
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.... Thus, in view of the above, it is respectfully submitted that the assessee's contentions on legal jurisdictional/ of AO not followed the DRP directions are without any basis, incorrect and misleading as the AD as duly followed the DRP directions. Also, it is submitted that the assessee cannot dictate the manner and the language used by the AD in passing the orders. Accordingly it is humbly prayed that the hearing on merits of the additions made, may kindly be fixed at the earliest." 12. In rejoinder, ld. AR for the assessee submitted his submissions which are as under :- "Final order passed in violation of directions of DRP u/s 144C- invalid 4. It is reiterated that the impugned assessment order has been passed by the JAO (and not by NFAC) without following the binding directions of the DRP as summarised hereunder: (a) First and foremost, the impugned final assessment order has been passed by JAO and not by NFAC. It is emphatically reiterated that JAO had no authority whatsoever to pass the impugned final assessment order and therefore, the impugned order is wholly without jurisdiction, illegal and bad in law [refer detailed submissions at paras 2....
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....6. During the course of last hearing, the Ld. DR submitted that although the impugned order was passed in violation of DRP's directions, the same ought not be quashed but may be remanded back; the ld. CIT(DR) placed reliance on decision in the case of Hitachi Astemo Haryana Pvt. Ltd. vs. DCIT [ITA No.1005/Del/2022; decided on 23.11.2023]. 7. Reliance on the aforesaid decision is, it is submitted, completely misplaced inasmuch in that case the Tribunal remanded the matter to the assessing officer on peculiar facts. In that case, the assessing officer, in order to pass the assessment order within one month from DRP's direction, passed the assessment order without incorporating the TPO's order giving effect in pursuance to the DRP's direction, since as on that date TPO's order was not received by the assessing officer; the said assessment order was, however, passed subject to modification on the basis of TPO's order. Thus, it was, in the light of the said peculiar factsthe Tribunal remanded the matter to the file of assessing officer. Further, the judgements relied upon by the Tribunal in that case are completed different since the same dealt with cases where the final order ....
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....bservations of the Delhi Bench of the Tribunal in the case of Oxbow Energy Solutions LLC v. DCIT: 2023] 199 ITD 770 dated 31.01.2023: "10. As could be seen on a perusal of the final assessment order under challenge in the present appeal, while implementing the directions of learned DRP, the Assessing Officer, though, deleted the addition made of Rs. 53,14,19,634/-, however, he made the addition of Rs. 26,56,35,337/-, accepted as explained in the draft assessment order. The aforesaid action of the Assessing Officer is totally unacceptable as he has exceeded his jurisdiction provided under the statute. As could be seen from the observations of learned DRP reproduced above, a clear direction was issued to the Assessing Officer to delete the addition of Rs. 53,14,19,634/- proposed in the draft assessment order. There is no other direction by learned DRP. Instead of implementing the direction of learned DRP in letter and spirit, the Assessing Officer has attempted to overreach the direction of learned DRP by making addition of an item of income, which was not made at the draft assessment stage, hence, not a subject matter of dispute before learned DRP. 11. At this stag....
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....-bound to implement the directions of the DRP. The Assessing Officer, being a statutory authority, is bound to act in accordance with the procedure laid down in Statute and cannot deviate. Since, we have come across several instances of non-implementation of directions given by the DRP to the Assessing Officers, it is high time to take appropriate corrective measures to stem the deficiencies. Therefore, we direct the matter to be brought to the notice of the concerned higher Authorities so that necessary advisory/guidelines are issued to sensitize the Assessing Officers in the matter of implementation of directions of the DRP. We leave the matter at this. 14. In the result, the appeal is allowed, as indicated above." 15. Attention is also invited to the decision of the Mumbai Bench of the Tribunal in the case of I.A.R. System Aktiebolag v. DCIT: [2023] 152 taxmann.com 626 (Mumbai - Trib.)[02-05-2023]wherein it has been held that where DRP had given clear cut finding that income earned by assessee, a foreign company supplying software through intermediaries in India and various companies, would fall under FTS but the assessing officer completed assessment treating ....
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....13) of the Act. After considering the submissions of both the parties, we are of the view that Assessing Officer has not followed the directions of the Ld. DRP and the directions of the Ld. DRP are very clear and Assessing Officer has not bothered to atleast classify the income earned by the assessee under the head FTS as per the directions of the Ld. DRP and royalty. He proceeded to complete the final Assessment Order based on his own analysis made by him in draft Assessment Order which is clearly a violation of not following the directions of the higher authorities and also the provisions of section 144C(13) of the Act. At the time of hearing, Ld. DR heavily relied on the decision of the ITAT Bangalore in the case of Yokogawa India Ltd. (supra) in which the bench has remitted the issue back to the file of the Assessing Officer/TPO to redo the assessment by following the directions of the Ld.DRP. We observe that in that case there is an issue of determination of arm's length price of payment towards management fees, global sales and marketing activities fees. We do not intend to follow this decision of the ITAT Bengaluru bench for the simple reason that the Assessing Officer w....
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....ure in law to be followed for completion of assessment, which is sacrosanct and cannot be done away with; any violation to the mandatory procedure results in the order so passed being invalid and non-est in eyes of law. 21. In this regard, it is pertinent to note as under: (a) There is distinction between procedure mandated by law vis-à-vis procedure requiring compliance on account of natural justice. In case of violation of mandatory procedure prescribed in law, the assessment framed is nullity. The option of remanding the matter to the file of the assessing officer could be relevant only in case of violation of principles of natural justice. (b) It is settled law that if law prescribes an action to be performed in a particular manner, then, the same can only be performed in that manner and not otherwise-if such mandatory procedure in law not followed, order is nullity and bad in law. Reference may be made to the following decisions: - Turner International India (P) Ltd vs. DCIT [2017] 398 ITR 177 (Del) - PCIT vs. Headstrong Services [2021] 278 Taxman 224 (Del) - ACIT vs. Mon Mohan Kohli [2022] 441 ITR 207 (Del) ....
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....rma11.) Emphatic reliance is placed on the decision of the apex Court in the case of Hope Textiles Ltd. v. UoI: [1994] 205 ITR 508 (SC). In that case, the assessee filed a return on the basis of which an order of assessment was made on 27.3.1974 and certain losses disclosed by the assessee were accepted. A notice under section 148 of the Act was issued to the assessee on 21.2.1976, pursuant to which the assessee-company filed a return on 27.3.1976 disclosing further losses. Till September 1981, no orders were passed in the reassessment proceedings. On writ, the High Court dismissed the writ petition filed by the assessee for the issuance of a mandamus to the ITO to pass orders in pursuance of the notice, observing that no such mandamus could be issued to ITO to make an order of assessment beyond the period of limitation prescribed by section 153(2)of the Act. On appeal to the Supreme Court, it was held that a writ of mandamus can be issued compelling a statutory authority to perform its statutory obligation and not to pass an order in violation of a statutory provision; the ITO has no power to make a reassessment beyond the period prescribed by sub-sectio....
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....ome leverage to correct themselves since the faceless assessment scheme was introduced recently. - the judgments were, most importantly, rendered by the Court pursuant to writ petitions filed before the High Courts under Article 226 of the Constitution of India, wherein the Courts have been vested with extraordinary jurisdiction and wide powers. The said directions rendered exercising such extraordinarily constitutional powers cannot be held to be available with the statutory appellate forums such as ITAT. The Hon'ble ITAT, in our submission, is a statutory body created under law and thus the provisions of the Act are binding on the statutory authorities including the ITAT. Any violation of provisions of law would result in quashing/ setting-aside of the order passed in violation of the statutory provision. - various Courts have, in identical circumstances, quashed the assessment order as detailed in synopsis dated 29.08.2022. 3. Expert Capital Services (P.) Ltd. vs. NFAC [2021] 129 taxmann.com 239 (Del.) In the said decision, the Delhi High Court had remanded the matter to the file of the assessing officer since no opportunity of hearing was provided to the asses....
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....ollowing issues: i. DAO was not passed as per sec.144B (1)(xiv)(b) ii. NFAC passed the DAO without allowing personal hearing in gross violation of mandatory provisions of the Act. iii. FAO passed by the JAO instead of NFAC is beyond jurisdiction as per section 144B of the Act. iv. JAO has not followed the directions of the DRP v. FAO passed without considering the submissions and evidences filed by the assessee. 14. After considering the issues under consideration, in our considered view, historically two types of assessee are assessed to tax, viz, regular assessee who are falling under the regular assessment proceedings viz., section 143(3), 144, 147 and another category falling under section 144C (eligible assessee - whose cases are referred to Transfer pricing officer and non-resident not being a company or any foreign company). The procedure for assessment for assessee falling u/s 144C are already coded in the section 144C itself prior to introduction of faceless assessment regime. When newly scheme of faceless assessment proceedings were announced, it was new to all the stake holders and the procedure was specifically designed to....
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....he DAO is bad in law and deserves to be quashed. We observed that all the case law relied by the assessee are relating to the assessments framed u/s 143(3), 144 and 147 of the Act. There is no case wherein the issue of 144C was adjudicated. This is the peculiar case and we already held that the procedure u/s 144C is different and outcome of the NFAC in this case is only the DAO not FAO. There is considerable difference in both the type of assessments. In the case of section 144C assessment, the assessee gets one more opportunity to represent his issues before DRP. Hence there is no prejudicial caused to the assessee. Therefore, the case law relied by the assessee are distinguishable hence not considered. 17. Coming to the issue of passing of FAO by the JAO beyond the jurisdiction of section 144B of the Act. We observed from the record that the assessment was initiated by the NFAC and after following the coded process u/s 144B, NFAC has passed the DAO. The assessee chose to refer the matter to DRP by raising objections on the DAO. After the direction of DRP, the FAO was passed by the JAO. In our considered view, assessment procedure laid down in section 144B is common and the ass....
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....t facts are, the assessee has issued share capital to its AE's during the current assessment year along with the share premium. The assessee has submitted all the details of the shareholders, complete address, PAN, number of shares issued, face value, details of share premium, total amount received. Further they have already filed the justification of issue of shares at the price issued by them by submitting the valuation report before the authorities. Further we observed that the shares were issued to its AE's outside India and they have also filed the relevant inward remittance certificates (FIRC) to justify the receipt of money from the non-resident shareholders. Further they have also filed the confirmations from them and also they have complied with the FDI norms and relevant documents were also filed before the authorities below. We observed that the same documents were submitted before TPO and also before AO. But the JAO has completed the assessment by making addition u/s 68 on the same reasons recorded in the DAO. Aggrieved, the assessee filed the objections before DRP and they have remitted the issue back to the file of AO to verify the relevant information filed by the as....
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....Smt. Susila Ramasamy (supra) and Saraswati Holding Corpn. Inc. (supra) and the import of CBDT circular referred to above. Whenever remittances are made by the non-resident holding company for purchase of shares of its subsidiary in India, the money undoubtedly is capital in the nature and if documents like FIRC etc. are produced, it can safely be stated that the said money came in through banking channels. 11.6 In the absence of any evidence to show that the money remitted by the non-resident accrued in India, it cannot be held to be taxable in India. Hence, moneys remitted by non-residents whose identity is not in question through their bank accounts outside India have to be held as capital receipts not exigible to tax. It therefore naturally follows that if the identity of the non-resident remitter is established and the money has come in through banking channels, it would constitute a capital receipt and ordinarily cannot be treated as deemed income under s. 68 or 69 of the Act. This is clarified by the CBDT circular itself. 11.7 Taking into consideration of all the above, we find merit in the argument of the learned counsel for the assessee that the primary bu....
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....ives money by way of share capital, then the source of funds of resident shareholder has to be established by the assessee in order to get out of the kin of the deeming provision under s. 68. Hence, the proviso talks of the source being established only when the shareholder is a resident of India. There is no such requirement if shareholder is a non-resident. Therefore, the creditworthiness of the shareholders, if he is a non-resident, does not have to be established by the assessee in respect of remittance received by him." 24. In this case, the assessee has already proved the identity of the share holders since the same shareholders have invested in the previous assessment year and relevant documents submitted to prove the identity before the authorities. With regard to credit worthiness, the same was invested by the AE's of the same group and the same was also approved by the RBI as well as funds have come thru inward remittances. With regard to genuineness, we observed that the assessee has properly received the share capital alongwith the share premium and invested the same in the business. This is part of capital transactions, therefore, all the ingredients of the section ....