Form 35 Submission with Scanned Signature for filing CIT appeal is Sustainable in Law

The Dispute Resolution Panel (DRP) under the Income Tax Act, 1961 is an Alternative Dispute Resolution (ADR) mechanism for resolving the disputes relating to Transfer Pricing in International Transactions. Section 144C [Reference to Dispute Resolution Panel] governs the provisions relating to DRP and defines DRP as a collegium comprising of three Commissioners of Income-tax constituted by the Central Board of Direct Taxes for this purpose.

Section 144C comes into picture when the Assessing Officer (AO) proposes to make, any variation in the income or loss stated in the return filed by the assessee and such variation is prejudicial to the interest of the assessee and the AO forwards a draft of the proposed Assessment order to the assessee in order to invite his acceptance or objections to the same.

The objections if any, of the eligible assessee to the draft order may be filed in person or through his agent within the specified period in Form No. 35A.After the successful submission of the form, the taxpayer has to Attach the signature file generated using DSC Management Utility to verify the Form. If the taxpayer does not have a DSC registered in the profile then he/she may verify the form by EVC or by generating an OTP via Aadhar. The Panel may, in its discretion, either accept the objections or reject it.

Let us refer to the case of Rivendell PE Vs ACIT (ITAT Mumbai)where the issue under consideration was whether the submission of Form 35 alongwith scanned copy of signature at the time of filing CIT appeal was sustainable in law?The appeal filed by the assessee was directed against the order passed by the Disputes Resolution Panel under Section 143(3) of the Income Tax Act, 1961.

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Facts of the Case

• The assessee, a resident of Mauritius invested in the share capital of Indian companies and seeking capital gain opportunities and filed its return of income.
• Upon scrutiny the AO issued the draft assessment order under Section 143(3) read with Section 144C,where the AO considered the short-term capital loss and long-term capital loss as non-genuine and the same was, therefore, held as not allowable to be carried forward.
• Being aggrieved with the draft assessment order the assessee preferred an objection in Form 35A before the Dispute Resolution Panel (DRP) in respect of the variations proposed by the AO.

Proceedings of DRP

• During the course of proceedings before the DRP, it was observed by the Members of the panel that Form 35A filed by the assessee was not verified as per the procedure laid down since the signature of the person on verification page in the form was a copy of the original signature.
• On that premise the panel proceeded to consider the maintainability of the objection filed by the assessee under Form 35A.
• The same was brought to the notice of the assessee whereupon the assessee replied that at that relevant point of time (i.e due date to file the objection ), since Mauritius was hit by a cyclone leading to heavy rainfall and causing devastating damage in the country, the Directors present in Mauritius were not available for signing and forwarding the original objections.
• To meet the deadline, therefore, the assessee got the original objections signed by one of its Director available at United States of America and filed the scanned copy. Later the original documents were received by the assessee.
• A copy of the newspaper reporting in respect of the cyclone at Mauritius was also attached with such objections filed before the DRP.
• The case of the assesseewas that there was no difference between the scanned copy and the original.
• The assessee requested to consider the original one. However, such plea of the assessee was not found acceptable by the DRP and the same was rejected.
• Aggrieved with the order of the DRP, assessee appealed before the Income Tax Appellate Tribunal (ITAT).

Observations of the ITAT

• It appearedto the ITAT that in the order, the DRP observed that submitting a verification form with the scanned copy of the signature was as good as submitting of unsigned paper since the scanned copy of the signature had no legal sanctity.
• According to the DRP, it was obvious that the person scanning the signature was other than the original signatory and hence if this was allowed as a mode of validation of the document, anyone could act on behalf of some other person by scanning others signature.
• The said Form No. 35A claimed to be filed in terms of Rule 4 of the DRP rules had not mentioned whether the same was verified with original signature and hence the said application was rejected by the DRP.
• After careful reading of the order passed by the DRP,ITAT found no issuew.r.t the reason explained by the assessee for filing Form 35A with the scanned signature.
• Rather, ITATobserved that when the concerned Director was not available at Mauritius, the assessee with genuine intention got the said form signed by the other Director of the company available in United States of America and filed the scanned document thereon within the due date.
• Even if it was a defect in the eyes of law, according to the ITAT, it was a procedural defect and hence curable, since procedures were handmade of justice.

ITAT considered the judgment passed by the Tribunal in the matter of MSM Satellite (Singapore) Pte. Ltd. vs. JCIT (2016) as relied by the assessee in support of his case

• ITAT had analysed the conduct and mind of the assessee and found that the activities suggested that the assessee wanted to make use of the benefits of the office of DRP.
• They prepared the relevant papers in Form no. 35A, signed the same in time, scanned them, sent the office in India for filing before the DRP and ensured filing them before the expiry of the due date i.e. within 30 days from the date of the draft order of the AO.
• In that case, the issue was why the same was not replaced by the assessee by filing Original Form 35A?
• ITATobserved that, the furnishing of the scanned papers and replacing them with hard copies or soft copies, if any, was now not new to the Department.
• Further, now, the Revenue had also started accepting the e-filing of application/appeals.
• Considering the same, ITAT was of the view that both the decisions of the first appellate authority in dismissing the application were unsustainable in law
• In the result, appeal filed by the assesseewas allowed by the ITAT.

Conclusions bythe ITAT in present Case

• In the present case, ITAT observed that when the Revenue was accepting the e-filing of documents then the rejection of the Form 35A submitted by the assesseewas unsustainable in the identical issue.
• In that view of the matter, relying upon the ratio laid down in the above judgment,ITAT found no merit in rejecting the Form 35A filed by the assessee
• ITAT thus quashed the order of the DRP and allowed the submission of Form 35A filed by the assessee.
• ITATdirected the DRP to accept the original Form No. 35A submitted by the assessee and to proceed with the matter upon giving an opportunity of hearing to the assessee and to pass a reasoned order in accordance with law.

Therefore, the submission of Form 35 alongwith scanned copy of signature at the time of filing CIT appeal is sustainable in law.

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