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Section 144C

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Untenable disallowance under Section 14A due to the mechanical implementation of Rule 8D

Untenable disallowance under Section 14A due to the mechanical implementation of Rule 8D

Fact and issue of the case

These appeals of the assessee are directed against the order of the Assistant Commissioner of Income-tax, Central Circle-5(3), Mumbai passed under section 143(3) read with section 144C(13) dated 28/06/2022 and 28/07/2022 for the Assessment Years 2017-18 and 2018-19, respectively. Since identical issues are agitated in these appeals, both the appeals are disposed of by way of this common order.

The assessee, Unilever India Exports Limited (UIEL) is a wholly owned subsidiary of Hindustan Unilever Limited (HUL). The fast moving consumer goods (FMCG) exports business of HUL was transferred to UIEL under a court approved scheme of arrangement with the appointed date of April 1, 2011.

The assessee company is engaged in the manufacturing of branded FMCG products, namely Foods and Beverages and Home and Personal Care (HPC) products. These brands are owned either by Unilever Plc / Unilever NV, the ultimate parent companies of the Unilever Group of HUL.

I.T.A. No.2108/Mum/2022 for AY 2017-18

The assessee has e-filed its return of income for A.Y. 2017-18 declaring total income of Rs.156,38,060/- on 30/11/2017 Statutory notices along with questionnaire were issued by the Assessing Officer which have been complied with by the assessee by electronically submitting the details called for from time to time. Since the assessee had international transactions with its AE a reference was made to the Transfer Pricing Officer (TPO) for determination of Arms Length Price (ALP) of such transactions. The TPO made the following adjustments:-

1.Payment of royalty for technical documentation, information and technical know

Rs. 6,54,03,000/-
2.Payment of royalty for central servicesRs. 11,65,31,532/-
3.Purchase of raw material and the sale/ Export of HPC & P&B

Rs. 40,11,63,635/-

Observation of the court

Excess Levy of interest u/s.234B and D (Ground No.14)

In this regard we direct the assessing officer to consider the facts afresh and rectify the errors in the calculation interest u/s.234B and 234D after giving a reasonable opportunity of being heard.

Ground 1 is general and Ground No.15 is consequential and these grounds do not warrant a separate adjudication.

The assessee also raised a legal issue through Ground No.2 with respect to the assessment order being issued without Department Identification Number (DIN). The ld AR during the course of hearing submitted that if the issues are considered on merits and held in favour of the assessee the ground no.1 will not be pressed. In view of our decision as given in this order, the legal issue contended has become academic and accordingly left open.

I.T.A. No.2107/Mum/2022 for A.Y. 2018-19

Ground No.1 is general and Ground No.8 is consequential and these grounds do not warrant a separate adjudication.

Through Ground No.2, the assessee is contending the TP adjustment made towards Central Services. For the year under consideration the ld AR and Ld DR made similar submissions. We have in the earlier part of this order, have considered the same issued and have held that the TP adjustment be deleted. The facts for AY 2018-19 being identical, we hold that the TP adjustment made towards central services for this year also be deleted.

Ground No.7 pertains to excess levy of interest u/s.234B. In this regard we direct the assessing officer to consider the calculation of interest afresh in accordance with law and rectify the errors in the computation of interest.

In the result, appeal of the assessee for AY 2017-18 and 2018-19 are allowed.

Order pronounced in the open court on 11/05/2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Unilever-India-Exports-Limited-Vs-ACIT-ITAT-Mumbai

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An assessment order made against a nonexistent corporation is invalid

An assessment order made against a nonexistent corporation is invalid

Fact and issue of the case

This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, in proceeding u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B vide order dated 25th July, 2022 passed for the assessment year 2017-18.

The assessee has taken the following grounds of appeal:

“Each of the grounds of the appeal are independent and without prejudice to the others: General Ground On the facts and in the circumstances of the case and in law, the Learned Dispute Resolution Panel erred in confirming the addition proposed by the Learned. Assessing Officer (Ld. AO)/ Learned Transfer Pricing Officer (Ld. TPO) of INR 16,93,08,9877- to the income of the- Appellant.

The Appellant prays that the assessment proceedings be held as bad in law and as such deserve to be quashed.

Ground on validity of the order issued in the name of non-existent entity

On the facts and in the circumstances of the case and in law, the TPO erred in issuing the Transfer Pricing Order under section 92CA(3) of the Income-tax Act, 1961 (‘the Act’) on a non-existent company i.e. ‘Allscripts (India) Private Limitedç thus making the order passed by the Ld. TPO null and void.

The Appellant prays that since the order passed by the TPO is bad in law and deserves to be quashed, the Draft Assessment Order u/s 143(3) r.w. section 144C of the Act and the Final Assessment Order u/s 143(3) r.w. section 144C(13) of the Act are also bad in law and ought to be quashed.

On the facts and in the circumstances of the case and in law, the AO erred in issuing the Draft Assessment Order under section 143(3) read with section 144C(1) of the Act on a non-existent company i.e.’ Allscripts (India) Private Limitedç thus making the order passed by the Ld. AO null and void

The Appellant prays that the draft assessment order passed by the Ld. AO be held as bad in law, null and void-ab-initio and accordingly the Final Assessment Order u/s 143(3) r.w. section 144C(13) of the Act passed by the Ld. AO pursuant to the directions of the Ld. DRP is also liable to be quashed.

Transfer Pricing Adjustment in relation to provision of software development services

On the facts and in the circumstances of the case, and in law, Ld. AO/ Ld. Transfer Pricing Officer (TPO’), following the directions of DRP, erred in confirming the addition of INR 1 6,85,57,066/- to the total income of the Appellant by holding that the international transaction in relation to provision of software development services by the Appellant is not at arm’s length price as envisaged under the Act.

The Appellant prays that the Ld. TPO be directed to accept the book value of the aforesaid international transactions as the arm’s length price and accordingly, the Transfer Pricing (‘TP’) adjustment ought to be deleted.

Observation of the court

We have heard the rival contentions and perused the material on record. In the case of FedEx Express Transportation v. DCIT 108 taxmann.com 542 (Mumbai – Trib.), the ITAT held that where draft assessment order under section 144C was passed in name of amalgamating company, which was a non-existent entity in eyes of law on date of passing of such order, it became an illegal order and, thus, entire assessment proceedings based on such an invalid draft assessment order were void ab initio and deserved to be quashed. In the case of Siemens Ltd. v. DCIT 147 taxmann.com 118 (Mumbai – Trib.), the ITAT held that where draft assessment order under section 144C was passed in name of amalgamating company, which was a non-existent entity on date of passing of such order, it became an illegal order and thus, entire assessment proceedings based on such an invalid draft assessment order were void ab initio and deserved to be quashed. In the case of BOEING India (P.) Ltd. v. ACIT 121 taxmann.com 276 (Delhi – Trib.), the ITAT held that where draft assessment order under section 144C was passed in name of amalgamated company which was non-existent company, said order was void ab initio. In the case of PCIT v. Maruti Suzuki India Ltd107 taxmann.com 375 (SC), the Hon’ble Supreme Court held that where assessee company was amalgamated with another company and thereby lost its existence, assessment order passed subsequently in name of said non-existing entity, would be without jurisdiction and was to be set aside. In the case of Dimension Data Asia Pacific PTE Ltd. v. DCIT 96 taxmann.com 182 (Bombay), the Hon’ble High Court held that where in case of foreign assessee, Assessing Officer passed final assessment order under section 144C(13), read with section 143(3) without passing a draft assessment order under section 144C(1), said order being violative of provisions of section 144C(1), deserved to be set aside. In the case of Vedanta Ltd. v. ACIT 126 taxmann.com 283 (Delhi – Trib.), the ITAT held that Draft/final assessment order framed in name of non-existent entity is void ab initio and such order is not curable defect under section 292(b).

Now in the instant facts, we observe that the assessee had filed a formal intimation before the DCIT, Transfer Pricing on 11 September 2019 intimating that AIPL has been converted into LLP w.e.f. 21 March 2017 (copy of the same has been placed on record for our perusal). Further, the assessee had also filed letter dated 12 August 2019 before the ACIT, Circle 1(1)(1), Vadodara intimating him about the conversion of AIPL into LLP (copy of the letter has been placed on record for our perusal). Therefore, we observe that the fact of conversion of AIPL into LLP was intimated to both the Ld. Assessing Officer and the TPO much before passing of their respective orders, yet both the TPO and the Ld. Assessing Officer passed the Transfer Pricing Order and the draft assessment order in the name of a non­existent entity. In our view, the view of the Courts and Tribunals on this issue is unanimous that once the draft assessment order and Transfer pricing order itself are bad in law, having been passed in the name of a non-existent entity, then the final assessment order based on the above orders is void ab initio as well. In view of the above settled position of law, we are of the view that the final assessment order sought to be appeal against is void and hence liable to be set aside.

In the result, Ground Number 2 of the assessee’s appeal challenging the validity of the order passed in the name of the non-existent entity is allowed.

Since, we have adjudicated the issue in favour of the assessee on the grounds of jurisdiction itself, we are not adjudicating on the other Grounds of Appeal filed by the assessee.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 08-05-2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Allscripts-India-LLP-Vs-National-Faceless-Assessment-Centre-ITAT-Ahmedabad

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Capitalised expenses shouldn’t be used in the proportionate TP adjustment calculation

Capitalised expenses shouldn’t be used in the proportionate TP adjustment calculation

Fact and issue of the case

This appeal by assessee is directed against final assessment order passed by AO/NFAC dated 28.4.202 1 u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act,1961 [‘the Act’ for short] for the assessment year 2016-17

The assessee has raised following grounds of appeal

The grounds mentioned herein below are independent and without prejudice to the other grounds preferred by the Appellant

That on facts and circumstances of the case and in law, the order passed by the Learned AO, pursuant to the directions of the Hon ‘ble Dispute Resolution Panel — 2, Bangalore (‘Panel’), and the order of the Learned Deputy Commissioner of Income-tax, Transfer Pricing- Circle (2)(2)(2), Bangalore (Learned TPO’) to the extent prejudicial to the Appellant, is bad in law and facts and liable to be quashed

That on the facts and in the circumstances of the case, the Learned AO erred in making a TP adjustment in connection with the Appellant’s international transactions by INR 422,124,000

That the learned AO in pursuance of the directions issued by the Hon ‘ble Panel erred in proposing a TP adjustment by not appreciating that the Appellant has incurred significant losses during AY 2016-17 due to business reasons

That, on the facts and circumstances of the case, the Learned AO in pursuance of the directions issued by the Hon ‘ble Panel erred in rejecting the TP documentation maintained by tile Appellant under Section, 92D of the Act.

That the Learned AO in pursuance of the directions issued by the Hon’ble Panel erred in law and facts by rejecting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act and the Income-tax Rules, 1962 (`the Rules’), thereby arbitrarily rejecting the economic analysis undertaken by the Appellant and in conducting fresh economic analysis

That the Learned AO in pursuance of the directions issued by the Hon’ble Panel, erred in rejecting the choice of tested party as Toyota Industries Corporation (`TIC0′) in connection with the international transaction of purchase of raw materials and in conducting a fresh economic analysis by considering TIEI as tested party with respect to all the international transactions entered into by the Appellant during AY 2016-1 7

That the Learned AO in pursuance of the directions issued by the Hon’ble Panel, erred in rejecting the transaction-by-transaction benchmarking approach adopted by the Appellant and following aggregation approach to benchmark all the international transactions entered during AY 2016-1 7

That the Learned AO in pursuance of the directions issued by the Hon’ble Panel, erred in the methodology adopted for computation of related party transactions (`RPT’) / sales filter

That the Learned AO in pursuance of the directions issued by the Hon’ble Panel, erred in the selection of following comparable companies which do not satisfy the test of comparability:

Kalyani Forge Ltd

Dana India Pvt. Ltd

Endurance Technologies Ltd

JMT Auto Ltd

Vanaz Engineers Ltd

EMI Transmission Ltd

That the Learned AO in pursuance of the directions issued by the Hon ‘ble Panel erred in considering income / loss pertaining to foreign exchange fluctuations as operating in nature in computing the operating margin earned by the Appellant as well as the comparable companies

That the Learned AO in pursuance of the directions issued by the Hon’ble Panel erred in not providing the benefit of adjustment for working capital to the appellant

That the Learned AO in pursuance of the directions issued by the Hon’ble Panel erred in not providing the adjustment for depreciation, failing to appreciate that the ratio of depreciation to sales .of the Appellant is higher as compared to comparable companies and requires a suitable comparability adjustment. Further, the differences in accounting treatment for depreciation warrants suitable adjustment for comparability purposes

That the Learned AO in pursuance of the directions issued by the Hon ‘ble Panel erred in not granting capacity utilization adjustment to the Appellant by not appreciating that proportionate overheads incurred for unutilized capacity cannot be treated as operating expense while computation of operating margin of the Assessee

That the Hon’ble Panel erred in law and on facts in disregarding the application of the most appropriate profit level indicator for the purpose of benchmarking the international transactions of the Appellant

That the Learned AO erred in computation of proportionate adjustment by including the following international transactions which are capital in nature: Payment of professional and consultancy charges Purchase of fixed assets

That the Learned AO erred in the computation of TP adjustment contrary to the directions issued by the Hon ‘ble Panel by treating the CSR expenditure as operating in nature in the computation of margins earned by the Appellant

Based on the facts and circumstances of the present case and in law, the order passed by the Learned AO being not in conformity with the mandatory directions issued by the Hon’ble Panel under section 144C(5) of the Act, is bad in law and void

The assessee has filed an additional ground along with petition as follows

The Learned AO/Learned TPO erred in non-consideration of gross profit/sales as the PLI, with respect to the international transaction of purchase of raw materials

The ld. A.R. submitted that this ground was inadvertently not raised on earlier occasion due to oversight and requested to admit the ground

Observation of the court

We have heard the submissions regarding admission of this additional ground. The assessee failed to raise this ground earlier due to oversight and there is no malafideness in not raising this ground on earlier occasion and there is no necessity of investigation of any fresh facts so as to adjudicate this ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit this additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide

At the time of hearing, the assessee has not pressed any grounds other than ground Nos.15 & 18 in the memorandum of appeals. Hence, all the grounds other than ground Nos. 15 & 18 are dismissed as not pressed

Ground No.15:-

That the Learned AO erred in computation of proportionate adjustment by including the following international transactions which are capital in nature

Payment of professional and consultancy charges

Purchase of fixed assets

The ld. A.R. submitted that before the ld. DRP, assessee has contended that the transfer pricing adjustment with respect to the manufacturing of textile machinery/auto component segment should be restricted to the amount of international transaction pertaining to textile machinery/auto component segment. Accordingly, the ld. DRP has directed the TPO to recompute and reverify the computation of TP adjustment only with reference to the value of international transactions and not the entire revenue/cost of the assessee company. According to the ld. A.R., the AO/TPO while passing the final assessment order has included these payments i.e. payment of professional and consultation charges and purchase of fixed assets for the purpose of determining the TP adjustment. According to the ld. A.R., these expenditures are capitalized in the books of accounts of the assessee as these expenditures are capital in nature and it should not be considered for determining the ALP while making TP adjustments. Thus, he submitted that these two expenditures are to be excluded for the purpose of TP adjustment

The ld. D.R. submitted that this issue may be remitted back to the file of AO not to consider these two expenditures, while making TP adjustment, if it is capitalized by the assessee in its books of accounts

After hearing both the parties, we are inclined to remit this issue to the file of AO/TPO to examine whether these two expenditures namely payment of professional and consultation charges & purchase of fixed assets are capitalized in the books of accounts of assessee. If it is so, these expenditures cannot be considered for computation of proportionate TP adjustment and the AO/TPO has to decide the issue after giving opportunity of hearing to the assessee. Ordered accordingly

Ground No.18

The Learned AO/Learned TPO erred in non-consideration of gross profit/sales as the PLI, with respect to the international transaction of purchase of raw materials

After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee’s own case in ITA No.2585/Bang/2019 for the assessment year 2015-16 vide order dated 3.3.2023 wherein the Tribunal has held as under

After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee ’s own case in IT(TP)A No.485/Bang/2015 for the assessment year 2010-1 1 dated 18.52016, wherein the Tribunal held as under

In principle; we are in agreement with the contentions raised by assessee, as GP over sales can eliminate the difference in claim of depreciation due to age of machinery, rate at which it was claimed and method of claims like straight line on written down value. We accordingly direct the AO/TPO to adopt the comparison of profitability ratios adopting GP over sales, Since the details of capacity utilization of the comparable companies and rate of depreciation could not be analysed as commented by DRP, it would be better if GP analysis was undertaken taking sales less cost of raw material as basis (excluding other cost including Depreciation, interest etc) so that auto components; profitability could be analysed so as to consider whether the import of raw material from AE has effected the profitability of assessee under the TP provisions. Accordingly, we set aside the impugned orders of the Revenue authorities on this issue and restore the matter to the file of AO/TPO to carry out the exercise as stated above. Assessee should be given due opportunity. However, we make it clear that if any adjustment is required to be made, the same is to be restricted, as directed by DRP in para 3.1.3 (Ground No.2) above. The matters which have attained finality are not intended to be reopened. AO/TPO is directed accordingly. Ground No. 3 is allowed for statistical purposes

In view of the above order of this Tribunal in assessee’s own case, we allow this ground of assessee

In view of the above decision of the Tribunal, we allow this ground taken up by the assessee

In the result, the assessee’s appeal is partly allowed for statistical purposes

Order pronounced in the open court on 4th May, 2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Since the corporation is incorporated, managed, and controlled in the UAE, the director’s nationality is insufficient

Since the corporation is incorporated, managed, and controlled in the UAE, the director’s nationality is insufficient

Fact and issue of the case

These two appeals are filed by the assessees against two separate orders, both dated 30.01.2012, passed by the CIT(A), Gandhinagar for the Assessment Years 2009-10 for both the appeals.

The grounds of appeals are as under: :-

ITA No.123/RJT/2012 – A.Y. 2009-10

The order passed by the Learned CIT(A) is erroneous and contrary to the provisions of law & facts of the case and therefore needs to be suitably modified.

The Learned CIT(A) erred in confirming the decision of the AO of not granting the benefit as per DTAA between India & UAE as claimed by the appellant in return of income filed u/s.172(3) and also confirmed the demand of Rs.8,39,267/- arising therefrom.

The Learned CIT(A) erred in holding that Qawareb Ship Management LLC – Dubai was not wholly managed & controlled from UAE and hence it is not resident of UAE as per Article No.4 of DTAA between India & UAE and hence benefit of DTAA between India & UAE is not available to the appellant.”

ITA No.124/RJT/2012 – A.Y. 2009-10

The order passed by the Learned CIT(A) is erroneous and contrary to the provisions of law & facts of the case and therefore needs to be suitably modified.

The Learned CIT(A) erred in confirming the decision of the AO of not granting the benefit as per DTAA between India & UAE as claimed by the appellant in return of income filed u/s.172(3) and also confirmed the demand of Rs.4,88,471/- arising therefrom.

The Learned CIT(A) erred in holding that SABA Shipping International LLC – Dubai was not wholly managed & controlled from UAE and hence it is not resident of UAE as per Article No.4 of DTAA between India & UAE and hence benefit of DTAA between India & UAE is not available to the appellant.”

Observation of the court

Firstly we are taking ITA No.124/RJT/2012 M/s. Shantilal Shipping & Chartering Pvt. Ltd., a local Agent in India, had filed the provisional return under Section 172 of the Income Tax Act, 1961 on 10.06.2008 in respect of freight earned on corn transported through Vessel M.V.A. SHUJAA-1. In the said return, income of Rs.11,56,692/- was declared being 7.5% of the amount of Rs.1,54,22,560/- of freight received in India. Tax thereon comes to Rs.4,83,497/- at 41.8% and the same was claimed as exempt as per DTAA between Government of India and U.A.E. The Assessing Officer observed that local Agent has not submitted certain documents in respect of company which is incorporated in the UAE and which is managed and controlled only in UAE. The local agent produced certain documents and after taking cognisance of the said documents, the Assessing Officer observed that the said companies not residents of UAE as per Article 4 of DTAA agreement executed with Government of India and UAE and its place of effective control and management which is situated out of UAE. Thus, the Assessing Officer made addition of Rs.4,88,471/- and passed Assessment Order under Section 172(4) of the Act. Thus, the assessment order dated 21.12.2009, the Assessing Officer denied the exemption claimed by the assessee on the basis of DTAA between India and UAE.

Being aggrieved by the assessment order, the assessee through Local Agent filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

The Ld. AR submitted that the assessee has taken additional ground by stating that the Assessing Officer erred in passing the final Assessment Order under Section 143(3) of the Act without completing the procedural mandate under Section 144C of the Act being foreign Company. The Ld. AR submitted that the assessee is non­resident foreign company and, therefore, Section 172(4) of the Act will not be applicable in the present case. The Ld. AR further submitted that the Assessing Officer who have proceeded on the basis of Section 143(3) of the Act for which Section 144C of the Act has to be invoked. Thus, the Ld. AR submitted that the Assessment Order is null and void.

The Ld. DR submitted that the assessee company is non-resident and is in Shipping business and Section 172(4) of the Act and Section 172(7) of the Act which is for summary assessment is squarely applicable in assessee’s case.

We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Income Tax Act specifically have the provision under Section 172 of the Act for shipping business of non-resident. It is admitted fact that the assessee company is into shipping business and is a non­resident. This fact was never denied by the assessee at any point of time. The plea of the Ld. AR that Section 144C of the Act is related to overriding effect to any other Act/provisions related to Income Tax Act, but Section 144C of the Act is related to reference to Dispute Resolution Panel and for this particular case there was no reference to Dispute Resolution Panel. When there is specific Statute/Section given under any Act for a particular classified category then that Section will be applicable to that particular category only. The Ld. AR never contended that the assessee does not fall in that category of shipping business of non- resident. Thus, the additional ground taken by the assessee is dismissed.

On merit, the Ld. AR submitted that the assessee has filed additional evidences before us relating to business licence of the assessee company which was not before the Assessing Officer as well as before the CIT(A) as it took longer time as principal company was not in touch with the Local Agent after the Vessel left Indian soil. The Ld. AR further submitted that during the assessment proceedings, the assessee has filed copy of Double Tax Avoidance Agreement between India and UAE, copy of Tax Residency Certificate, copy of Memorandum of Association, copy of letter head of the Company, copy of Bank Statement, copy of Commercial Licence issued by Dubai Maritime City, Passport copies of the Directors of the Company and the clarification related to UAE resident of the Directors as well as that of Company. Before the CIT(A) the said documents were also produced but the CIT(A) as well as the Assessing Officer overlooked the details and granted exemption under DTAA between India and UAE as the assessee is a tax payer/resident of UAE.

The Ld. DR submitted that during the assessment proceedings, the assessee did not file the company’s AGM. Ld. DR pointed out that the AGM taken into general assembly of UAE and thereafter the UAE residency can be obtained but in assessee’s case the same was not done and three of the Directors/Partners are of the Nationality of Yemeni. The Ld. DR relied upon the Assessment and the order of the CIT(A).

We have heard both the parties and perused all the relevant material available on record. It is undisputed fact that the assessee is a limited liability company which is non-resident. As relates to commercial licence of the company, the same is issued by Dubai Maritime City which is UAE country. Besides this, the assessee has also submitted the Bank details of Standard Chartered Bank related to outward payment customer advise that of UAE only. Though the partners/Directors are Yemenis national except one of the partner, the address of that partner/director of the resident is Dubai, United Arab Emirates (UAE) only. The UAE court (Ministry of Finance) has issued Tax Residency Certificate to the assessee company on 19.06.2008 which set out that licence No.234584 has been given to the assessee company which is domiciled in UAE. From the perusal of the additional evidence, the assessee company has given business licence details once again which clearly set out that the assessee company is a resident of UAE. Thus, the Assessing Officer as well as the CIT(A) has totally ignored these facts. Merely Partner’s/Director’s nationality will not suffice the company’s residency when the company is registered and operational in a particular country in the present case is in UAE Dubai and has obtained the business licence from the said resident company is the resident of UAE.

Now coming to whether the exemption claimed by the assessee is applicable to assessee company or not is the question for which Article 4(1) defines the residents and it clearly set out that the individual who is present in the UAE for period or periods totalling in the aggregate at least 183 days in the calendar year concerned, and a company which is incorporated in the UAE and which is managed and controlled wholly in UAE. In the present case, the company is incorporated in UAE and is managed and controlled only in UAE. In fact, the company and its business is operational from UAE only. Thus, it is a tax resident of UAE and, therefore, treaty between India and UAE (DTAA) is applicable in the present case. Thus, Article 8 where Shipping Business and its profit has been determined in respect of taxability the same is applicable in the present case and thus the assessee is entitled for the treaty benefit. The Assessing Officer was not right in denying the exemption and hence the addition does not sustain. Therefore, ITA No.124/RJT/2012 is allowed.

As relates to ITA No.123/RJT/2012,Memorandum of Association clearly set out that the company is incorporated in UAE Dubai and the partner who is having 51% is resident of UAE only. Business licence is also issued by Government of UAE and the Bank details of Bank of Sharjah is also that of UAE only. The UAE Ministry of Finance issued the tax resident certificate in respect of the said assessee company with the licence no.547567 on 19.06.2008. The remaining facts are identical to the other company which is discussed hereinabove. Therefore, the ITA No.123/RJT/2012 is allowed in respect of Merit.

In the result, both the appeals of the assessee are allowed.

Order pronounced in the open Court on this 06th March, 2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Assessment orders that go beyond DRP directives may be revoked

Assessment orders that go beyond DRP directives may be revoked

Fact and issue of the case

Briefly the facts relating to the issue in dispute are, the assessee is a non-resident corporate entity incorporated in United States of America (USA). From the information generated through Annual Information Report (AIR) of the department, it was noticed that certain income earned by the assessee during the year was not offered to tax. Further, form the internal system developed by the department, viz., I-Taxnet; it was found that the assessee’s name appears in the list of Non-Filers Monitoring System (NMS). Meaning thereby, the assessee had not filed any return of income for the impugned assessment year. From the system generated information, it was noticed by the Assessing Officer that in the year under consideration, the assessee had entered into transaction of sale and purchase in National/Multi-commodity exchange, amounting to Rs.27,05,30,735/- and has made foreign remittances amounting to Rs.79,70,54,971/-. As observed by the Assessing Officer, in absence of any details due to non-filing of return of income, NMS notice was sent to the assessee to furnish necessary information on financial transaction/activities made during the year. However, the notice remained un-complied. Thus, ultimately, the Assessing Officer, forming a belief that income chargeable to tax in the year under dispute has escaped assessment, reopened the assessment under section 147 of the Act by issuing a notice under section 148 of the Act. As alleged by the Assessing Officer, neither the assessee complied with the notice issued under section 148 of the Act, nor to the notice issued under section 142(1) of the Act. Due to this reason, the Assessing Officer issued notices under section 133(6) of the Act to M/s DSP Merrill Lynch Ltd., M/s. City Bank Ltd. and M/s. Bombay Stock Exchange Ltd. From the information received from M/s DSP Merrill Lynch Ltd., which acted as a broker in respect of share transaction entered by the assessee, the Assessing Officer found that in the year under consideration the assessee had remitted aggregate amount of Rs.79,70,54,971/- in three trenches. He further found that the assessee has sold shares of Rain Commodities and Rain Industries Ltd. held by it in demat account with M/s DSP Merrill Lynch Ltd. for a consideration of Rs.26,57,84,295/- on 14.11.2011, which was reflected in the client statement of account provided by M/s DSP Merrill Lynch Ltd. Thus, stating that out of total remittances of Rs.79,70,54,971/- source of Rs.26,56,35,337/- could be identified, whereas, the source of the balance amount of Rs.53,14,19,634/- could not be identified, nor explained by the assessee due to non-furnishing of details, the Assessing Officer added back the amount of Rs.53,14,19,634/- at the hands of the assessee by invoking the provisions of section 69A of the Act, while framing a draft completing the assessment order to the best of his judgment under section 144 read with section 147 and 144C(1) of the Act.

Against the draft assessment order so proposed, the assessee raised objections before learned DRP. In course of proceeding before learned DRP, the assessee explained the reason for non-compliance in assessment proceeding by stating that since it did not have any login id on the Income Tax e-filing portal, wherein notices under section 148 and 142(1) of the Act were issued, it could not respond to such notices.

In the facts of the present appeal, the only direction of learned DRP is to delete the addition made in the draft assessment order. Therefore, the clear mandate given to the Assessing Officer by learned DRP is to restrict himself to delete the addition of Rs.53,14,19,634/-. Whereas, the Assessing Officer has travelled beyond the direction given by learned DRP and made addition of Rs.26,56,35,337/-, which he himself accepted as explained in the draft assessment order. Thus, the impugned assessment order has been passed in clear violation of the directions of learned DRP. Therefore, the assessment order is a nullity in the eyes of law as it is against the provisions contained under sub-section (10) and (13) of section 144C of the Act. That being the factual and legal position, we quash the final assessment order.

Observation of the court

Before parting, we must observe, in recent times, we have come across several instances of open defiance and non-implementation of directions issued by DRP by the Assessing Officers. This, in our view, is a very disturbing trend and reflects poorly on the credibility of the department and shakes the confidence of tax payers. Therefore, it goes against the Government’s policy of adopting taxpayer friendly approach. In any case of the matter, the DRP is constituted by three senior Commissioner level officers of the department and is a dispute resolution mechanism set up by the Government under the statute. As per the Statute, the Assessing Officer is duty-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.

In the result, the appeal is allowed, as indicated above.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Oxbow-Energy-Solutions-LLC-Vs-DCIT-ITAT-Delhi

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

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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