ADMINISTRATIVE ORDER

CBDT issues local transfer order of 50 CIT

FDI APPROVED

Government Approves One (1) Proposal of FDI

CASE LAWS

2016-TII-54-HC-AHM-TP

MASTEK LTD Vs DCIT: GUJARAT HIGH COURT (Dated: August 8, 2016)

Income tax - Sections 143(3) & 147.

Keywords - insurance charges - reopening - scrutiny in origional assessment & telecommunication expenses

Whether it is open to the AO to reopen an assessment beyond four years, in case all the details were minutely scrutinized by the AO during the original assessment - NO: HC

The assessee is engaged in the business of software services and related business. For the A.Y 2006-07, the assessee had filed its return declaring total income of Rs.61.28 lacs. The said return was taken up for scrutiny, and the assessment order was passed determining the assessee's income at Rs.22,46,55,290/-. In the assessment order the assessee was allowed exemption u/s 10A amounting to Rs.71,16,11,732/-. On perusal of the assessment records, it was noticed that while computing deduction u/s.10A, for the purpose of computing export turnover, telecommunication charges for export of computer software were not considered as the same were fixed in nature and not incurred specifically for export of software. It was also seen from the assessment records that the 'telecommunication charges' incurred by the assessee was Rs.2,58,14,421/- and ‘insurance charges' incurred was Rs.12,61,319/- totaling to Rs.2,70,75,740/- which was required to be deducted from the ‘Export turnover' to compute deduction u/s.10A. Thus, the deduction computed was excess by Rs.61,03,515/-. In view of the above, the AO had reason to believe that the income chargeable to tax to the extent of Rs.61,03,515/- had been under assessed on account of failure on the part of the assessee to disclose fully and truly all material facts. Therefore, the AO initiated reopening by invoking the provisions of Section 147.

Having heard the parties, the High Court held that,

+ it can be seen that for reopening a scrutiny assessment, the AO has issued notice beyond the period of 4 years from the end of relevant assessment year. In Special Civil Application No.2148 of 2014 also, such notice has been issued beyond the period of 4 years and is also based on identical reasons recorded by the AO. The assessee was visited with yet another notice for reopening for the A.Y 2008-09 which was also based on identical reasons recorded by the AO. This notice was challenged, which came to be allowed by the High Court by observing that: "....For the purpose of computing export turnover, telecommunication charges for export of computer software have not been considered as telecommunication charges. The same are fixed in nature and not incurred specifically for export of software. However, in case such expenses are reduced for the purpose of export turnover, the same would also be required to be reduced from total turnover. Thus, in the return filed the assessee had pointed out to the AO that for computing export turnover, telecommunication charges for export of computer software were not considered as telecommunication expenses. The same are fixed in nature and not incurred specifically for export of software. However, in case such expenses are reduced for the purpose of computing export turnover, the same are also to be reduced from the computation of total turn over....Quite apart from this conclusion, we notice that under communication to the AO, the assessee had given detailed clarification regarding the telecommunication expenses and freight and insurance charges. Thus, not only in the original return filed the assessee had made full disclosures, this issue was examined by the AO during the original assessment for which the assessee had given written explanation. Any permission now to the AO to re-examine the question would be allowing him to change the opinion originally framed...."

+ we may record that on all material aspects, these petitions involve identical issues. Not only the reasons recorded by the AO were similar, in the present petitions also the impugned notices have been issued beyond the period of 4 years from the end of relevant assessment year. As is recorded, even in the present cases the question of telecommunication expenses and freight and insurance charges was minutely scrutinized by the AO during the original assessment. Under the circumstances, without recording separate reasons, respective impugned notices are quashed.

Assessee's petition allowed

2016-TII-53-HC-MAD-TP

GAMESA RENEWABLE PVT LTD Vs ITO: MADRAS HIGH COURT (Dated: July 18, 2016)

Income tax - Sections 144C(5), 144C(12) & 253(d).

Keywords - direction by DRP - draft assessment order - eligible assessee - principle of natural justice & pendency before DRP

Whether in terms of Section 144C(12), any direction u/s 144C(5) can be issued by DRP after nine months from the end of the month in which draft order is forwarded to the eligible assessee - NO: HC

Whether an assessee can be blamed for the delay of nine months during which objections were kept pending before the DRP - NO: HC

Whether in terms of Section 253(d), the assessee is entitled to canvas the correctness of the order of DRP before the Tribunal while challenging the assessment order - YES: HC

Whether where the order passed by the DRP is in violation of the principles of natural justice, the assessee would be entitled to question the same before this Court invoking the jurisdiction under Article 226 of the Constitution of India - YES: HC

The assessee had preferred the present petition challenging the order of assessment passed by the ACIT for the A.Y 2011-12. The impugned assessment order was completed based upon the order passed by the DRP in exercise of its powers conferred u/s 144C(5) and such direction being implemented by the AO in terms of Section 144C(13) and complete the assessment.

Having heard the parties, the High Court held that,

+ the short issue which falls for consideration in these cases is whether there is violation of principles of natural justice in the proceedings before the DRP and whether the assessee was afforded fair and reasonable opportunity before the DRP. Undoubtedly, as the name indicates the Panel is a Dispute Resolution Panel, a special mechanism created under the Act by Finance (No.2) Act, 2009 with retrospective effect from 01.04.2009. In GE India Technology Centre Pvt. Ltd., the counsel who had appeared for the appellant before the High Court of Karnataka had placed for consideration of the Court the very purpose of introducing Transfer Pricing u/s 92C and it was pointed out that Clause 55 of the Bill seeks to insert a new Section 144C relating to DRP. The subjects of Transfer Pricing audit and the taxation of foreign company are at nascent stage in India and often the AOs and TPOs tend to take a conservative view and the correction of the view takes very long time with the existing appellate structure. Therefore, with a view to provide speedy disposal it is proposed to amend the Income Tax Act so as to create an alternative dispute resolution mechanism within the Income Tax Department and accordingly, Section 144C has been proposed to be inserted so as to provide inter alia the DRP as an alternative dispute mechanism. Thus going behind the object with which the aforementioned provision has been introduced, it has to be seen as to whether the manner in which the assessee has been dealt with by the Panel is proper and whether they had full and effective opportunity to put forth their submissions. The undisputed facts are that the Draft Assessment Order was received by the assessee on 4th April 2015. In terms of subsection (2) of Section 144C, the assessee had options to file their acceptance of the variations as done by the AO in terms of Section 144C(2)(a) or file their objection to such variations with the DRP and the AO in terms of Clause (b)-(i) and (ii) of Section 144C(2). The Assessee in the instant case opted for the second option under Clause (b) and filed their objections before the DRP and the AO on 17th April 2015. At this stage we may note that in terms of sub-section (12) of Section 144C, no direction under sub-section (5) shall be issued (by DRP) after nine months from the end of the month in which draft order is forwarded to the eligible assessee. The counsel submit that the period of nine months should be computed from 30th May 2015. But in my view the time should be computed from the date on which the Draft Assessment Order is received by the assessee as sub-section (12) of Section 144C uses the expression "Draft order is forwarded". Be that as it may, even accepting for the sake of argument that the time limit commences from 30.05.2015, no order could have been passed beyond 31.12.2015 by the DRP in view of the embargo u/s 144C(12). However, this aspect was within the knowledge of the DRP. Nevertheless, for nine months, the DRP did not fix the date for hearing the objections of the assessee. But only on 16th Dec 2015 the assessee was directed to appear;

+ it is not in dispute that on 16th Dec 2015 the assessee appeared and submitted a letter requesting for time to make effective submissions. In the above referred communication, the assessee had clearly indicated that the Draft Assessment Order was served on them on 4th April 2015 and the reference before the DRP was filed on 22nd April 2015. Therefore, the DRP was well aware as to when the period of nine months would expire. If such is the case, the DRP ought to have taken a realistic view in the matter. But nevertheless the assessee is stated to have been made to participate in the proceedings and therefore, they submitted a written submissions/objections dated 16th Dec 2015. Not stopping with that, on 17th Dec 2015 the assessee filed another objection. No doubt in these objections, factual contentions were raised. But it has to be seen as to whether the Dispute Resolution Panel which is said to have been constituted as alternative dispute resolution mechanism under the Act could have dealt with the matter in the manner done in the instant case. The assessee cannot be blamed for the delay of nine months during which objections were kept pending before the DRP. Therefore, the DRP while considering the request for adjournment could not have disbelieved the same as it is an admitted fact that entire Chennai was flooded and suburban were sub-merged. Hence, a realistic approach should have been taken on the assessee's request or request for adjournment should have either refused or granted time. Undoubtedly, the DRP had sufficient time to pass orders, when the period of nine months comes to an end reckoning the starting point of limitation when the Draft Assessment Order was prepared. Therefore, the DRP could have passed an interim order and rejected the request for adjournment which would have enabled the petitioner to work out their remedies available under law. However, it appears that in a hurried manner, the entire proceedings were closed and orders were passed. It may be true that in terms of Section 253(d), the assessee is entitled to canvas the correctness of the order of DRP before the Tribunal while challenging the Assessment Order. However, the order passed by the DRP, if it has been passed in violation of the principles of natural justice, the assessee would be entitled to question the same before this Court invoking the jurisdiction under Article 226 of the Constitution of India. Therefore, In the light of the orders passed by this Court remitting the matter to the DRP, the assessee is not entitled to raise the plea of limitation against the AO as well as the DRP while proceeding afresh to complete the assessment.

Case remanded