TMI Blog2013 (7) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... ll take up ITA No. 1868/Hyd/2011 by the assessee. The first ground in this appeal is that the Asst./ Deputy Director of Income-tax (International Taxation)-II does not have jurisdiction to complete assessment in the hands of the assessee. Brief facts relating to this issue, as narrated in the assessment order, are that the assessee company M/s. Platex Limited (for short Platex) is a company incorporated under the laws of Mauritius, with its registered and corporate office located at 10 Frere Felix de Valois Street. Port Louis, Mauritius and the present address being Rogers House 5, President John Kennedy Street, Port Louis, Mauritius 99999. The company is engaged in the business of providing financial services. The assessee company filed its return of income voluntarily for the A.Y. 2008-09 through e-filing on 7.07.2009 admitting net loss of ₹ 4,92,65,714 with PAN AAECP6200E. As the PAN is owned by Deputy Director of Income Tax (International Taxation), Circle-1(1), New Delhi, the return was processed u/s 143(1) of Income-tax Act, 1961 by the DDIT (International Taxation), New Delhi on 12.10.2010. The case has been selected for scrutiny through CASS. Therefore, notice u/s 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on loan taken for subscribing the debenture. Thus the assessee claimed a net loss of ₹ 4,92,65,714. The back ground fact of this case is related to earning of interest income by the foreign company Platex, Mauritius on its investment made in the debentures issued by an Indian company M/s. PVPVPL. M/s. M/s. PVPVPL had issued 88,644 fully convertible debentures (FCDs) of ₹ 1,00,000 each in 4 tranches as per 'subscription agreement(s)' dated 11th January, 2007; 21st February, 2007, 5th September, 2007 and 14th September, 2007 to Platex Ltd. These debentures bear interest @ 14.5% per annum on their principal amount, from and including the issue date up to the conversion date, which are required to be paid semi-annually on 15th June/15th December. Tranches Date of subscription Amount (in Rs.) First 16.01.2007 132,89,00,000 Second 22.03.2007 375,83,00,000 Third Fourth 14.09.2007 377,72,00,000 Total 886,44,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Act and tax to be deducted at source at the rate of 20% (plus applicable surcharge and education cess) on such interest without deduction for any allowance or expenditure. Since Platex Ltd., is a tax resident of Mauritius, while determining the tax liability, the provisions of DTAA between India and Mauritius would be applied in so far as they are beneficial to the assessee. As per Article 11 of the DTAA dealing with interest the state of source (India) has the right to tax the income by way of interest arising in India to a resident of Mauritius (Platex Ltd.) and such interest would be taxable as per the provisions of Indian Income-tax Act. In view of the above, the Assessing Officer observed that the rate applicable on the interest income in the hands of Platex Limited shall be twenty per cent plus applicable surcharge and education cess. 9. During the course of the assessment proceedings in this case, a detailed questionnaire has been issued to the assessee by ADIT (International Taxation), Circle-2(1), New Delhi on 12.10.2010 seeking information about the foreign company assessee. However, the assessee did not provide point wise reply to the queries made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o mentioned in the above letter that .... The assessee had subscribed [or 88,644 14% Fully Convertible Debentures (FCDs) of face value of ₹ 100,000 each issued by erstwhile PVP Private Limited PVP ) (PAN AADCP6654C) having its registered office at #8-2-609/K, Avenue 4 Street No. 1, Road No. 10, Banjara Hills. Hyderabad-500 034. The assessee had interest income receivable amounting to ₹ 54,14,61,912 during the Financial Year relevant to the A.Y. 2008-09 but had incurred expenditure for ₹ 59,07,27,656 which resulted in a loss of ₹ 4,92,65,714 ... However, it was noticed that you have filed the return of income for the Asst. Year 2008-09 through e-filing on 07-07-2009 vide acknowledgment number 71238450070709 with the PAN AAECP6200E. It is also noticed that you have declared loss of ₹ 4,92,65,714 and claimed TDS of ₹ 2,70,73,097 in the return of Income filed for the AY 2008-09 which are the same figures mentioned in your letter. You are therefore requested to clarify as to how you have stated that you have not filed the return of income when the return was actually filed on 07.07.2009. In your letter dated 29.10.2010 it was stated that In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he return of income voluntarily and not in response to any notices issued and the case has been selected for scrutiny through CASS the assessment is bound to be completed and the proceedings cannot be dropped as requested by you. In view of the facts mentioned above, you are requested to furnish the following information in connection with the finalization of the scrutiny assessment: 1) The information called for u/s. 142(1) of the IT Act 1961 vide letter dated 12.10.2010 by the Asst. Director of Income Tax Circle-2(I) International Taxation New Delhi (copy enclosed for ready reference) 2) Hard copy of the return of income filed for the A.Y 2008-09, along with enclosures. Balance Sheet and P L A/c, with annexures audit reports etc. 3) Complete details and nature of expenditure claimed with supporting evidence and justification with regard to the admissibility of claim of the expenditure as per the provisions of the Income Tax Act. 4) It is seen that you have shown the interest receipts on debentures at ₹ 54,14,61,942/- However, it is noticed during the assessment proceedings in the hands of Representative assessee (PVP Ventures) that the total interest accrued for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le amounting to ₹ 103,69,30,339 should not be treated as income of the assessee for the A.Y. 2008-09. The relevant portion of this letter of the Assessing Officer of dated 10.12.2010 to the assessee is reproduced below: Sub: IT Asst. - Your own A.Y. 2008-09 Information called for - Reg. Ref: This office reply dated 23.11.2010 and your reply dated 06.12.2010 and 09.12.2010. Please refer to the above. In your letter dated 09.12.2010, you have asked for a copy of' the notification or order passed for transferring the files of the company from Delhi to Hyderabad. With regard to the above it is to be stated that you have filed a letter dated 10.11.2010 before the ADIT, Circle-2(1), International Taxation, New Delhi stating In furtherance to our earlier submissions dated October 29, 2010 in connection with the above proceedings, we wish to reiterate the fact that Platex's only source of income in India for the Previous Year relevant to the Assessment Year 2008- 09 is the interest income on the debentures from the erstwhile PVP ventures Private Limited, the company which was registered and situated in Hyderabad in the state of Andhra Pradesh. Platex had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. This return has been processed u/s 143(1) of the IT Act by the DDIT (IT), Circle-1(1), New Delhi since the PAN is owned by him. The case has been selected for scrutiny through CASS and notices u/s 143(2) has been issued. Since, no assessment has been completed in the case of M/s. Platex Ltd., it cannot be said that this income has already been assessed to tax. Further, it is also to be stated that you have filed the return of income admitting loss and claiming refund of TDS. Contrary to the above you are now stating that there cannot be another proceeding in respect to the same income. This argument is not correct. The claim of refund of TDS made through the return of income filed cannot be considered without initiating any proceedings. Once the proceedings are initiated, the income/loss admitted and the claim of refund has to be examined and orders are to be passed. In view of the above, the contention raised by you is not based on facts and is liable to be rejected. With regard to the taxability of the income accrued to the foreign company Platex Ltd., you are arguing that M/s. PVP Ventures Ltd., should not be treated us an agent of Platex Ltd u/s 163 of the IT Act and at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order dared 06.07.2009 in the case of M/s. PVP Ventures Ltd., being the representative assessee of M/s Platex Ltd. You are also requested to explain as to why the interest accrued to you for the Financial year 2007- 08 should not be taken as ₹ 103,69,30,339 and assed to tax. You are requested to furnish the above information by 20.12.2010 since the assessment is going to be barred by limitation by 31.12.2010. You are requested to cooperate with the department by furnishing the complete information. Notices u/s. 143(2) and 142(1) are enclosed for compliance. 12. In response to the above letters of the AO, the assessee company filed its replies on 14.12.2010 and later on 20.12.2010. The replies of the assessee including certain objections raised by the assessee in its responses before the Assessing Officer are discussed here under: (a) With reference to the assessee's submission dated 14.12.2010, the assessee in its reply has given point-wise response to the detailed questionnaire of the Dept. dated 12-10-2010. In this letter dated 14.12.2010 the assessee again stated to have reserved its rights to contend the validity of proceedings/ jurisdiction. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o raising fresh issue and shall not be accepted. 13. In view of the objection of the assessee before DDIT (International Taxation), Circle-2(1), New Delhi as mentioned in subsequent letters of the assessee dated 04.10.2010 and 10.11.2010 addressed to DDIT (International Taxation), Circle- 2(1), New Delhi the assessee had reiterated its stand on the assessment proceedings for the A.Y. 2008-09 being not within the jurisdiction had pleaded for dropping the proceeding in view of the assessment of the income of the assessee already been completed in the hands of its representative assessee PVP Ventures Ltd., for the A.Y. 2008-09 by ADIT (International Taxation)-II, Hyderabad on 06.07.2009. The assessee made its request before ADIT, New Delhi despite the fact that the representative assessee of Platex Ltd., has challenged the validity of the very order of appointment of representative assessee to PVP Ventures Ltd., u/s 163 of the IT Act for the AY 2007-08 and 2008-09 before the appellate authority. Consequently, based on the objections of the assessee on the jurisdiction issue as per sec. 120 of the IT Act and the notification of the CBDT dated 28th September, 2007 this case has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locality or place, an opportunity of being heard must be given to the assessee. 17. He also submitted that the fact that the assessee objected to the jurisdiction of the Officer at Delhi cannot by itself be taken as a reason to transfer the file to Hyderabad. Merely because the jurisdiction is not at Delhi according to the assessee, it does not mean that the revenue authorities on their own can decide that the jurisdiction belongs to Hyderabad. Even going by the notification taking effect from 15.06.2012 issued by the Additional Director of Income Tax (International Taxation), Hyderabad, the jurisdiction of a non resident company which is stated to belong to the place where the source of income exists, it cannot be said that the revenue authorities at Hyderabad have jurisdiction over the assessee since, the payer of interest namely PVP Ventures Pvt. Ltd., had shifted its registered office to Chennai and also had merged with SSI Ltd by an order of the Madras High Court and thereafter had its name changed as PVP Ventures Ltd with registered office at Chennai. Even assuming that the authorities where the source belongs have jurisdiction, the jurisdiction can vest if at all only at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi and represented before the ADIT, New Delhi, that the non-resident M/s. Platex Ltd., Mauritius, has income arising only from Hyderabad. Thus, the ADIT-II, Hyderabad always had the jurisdiction on the non-resident company, M/s. Platex Ltd., Hyderabad and there was no requirement of an order u/s. 127 of the Act. Based on the assessee s stand that income is arising in Hyderabad and since the assessee was also opposing the jurisdiction in Delhi, the files were transferred to the jurisdictional Assessing Officer at Hyderabad. He drew our attention to the assessee s letter dated 10th November, 2010 in reply to notice issue dated 12.12.2010 u/s. 142(1) of the Act issued by Asst. Director of Income-tax, Circle-2(1), International Taxation, New Delhi. It is further submitted that the assessee on its own took certificate for lower deduction of tax u/s. 195 from the Assessing Officer at Hyderabad. According to the DR, the argument of the assessee that no order u/s. 127 was passed before transfer of the case from Delhi to Hyderabad, is untenable. It is also submitted that for every wrong filing of return in incorrect jurisdiction by assessee, it is not for the Department to pass an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee relating to assessment proceedings of the company for the A.Y. 2008-09. Mr Deepak Nagori is also holding the post of Vice President (Finance) for M/s. PVPVPL, Corporate office, 8-2-609/K, Avenue-4, Street No I, Road No 10, Banjara Hills, Hyderabad. He appeared before the Assessing Officer from time to time and furnished to some extent the information called for. The information furnished has been verified by the Assessing Officer and case was discussed with the AR of the assessee. 23. Now the question before us is whether the ADIT (International Taxation)-II, Hyderabad is having jurisdiction over the assessee. To decide this issue we would like to take support from the judgement of jurisdictional High Court in the case of Vijayasanthi Investments Pvt. Ltd. vs. CCIT Ors. (187 ITR 405) wherein held as under: Under Sub-section (1) of section 127 of the Act, the Director-General or chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him to any other As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ao Angre v. CIT . In that case, the show-cause notice issued to the petitioner stated that the Commissioner proposed the transfer as such transfer was considered necessary for the purpose of detailed and co-ordinated investigation . The petitioner submitted objections but, thereafter, no order was served on the petitioner regarding the transfer. The petitioner received notices from the officers to whom the case was transferred. After referring to the cases referred to above by us, the Madhya Pradesh High Court held that the words used in the notice did not amount to reasons . No order containing any reasons was also communicated. The writ petition was allowed. In V.K. Steel Industries (P.) Ltd. v. Asst. CIT , the impugned order passed by the Chief Commissioner of Income-tax, Hyderabad, stated that the cases pertaining to the petitioner are transferred from the Assistant Commissioner, Circle 4(3), Hyderabad, to the Assistant Commissioner (Investigation Circle 1), Vishakhapatnam. The reason given in the order was said to be to facilitate detailed and co-ordinated investigation . The order was preceded by a showcause notice which too stated the same reasons. However, when the writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion over the assessee. Even if there is a notification from the ADIT (International Taxation)-II, Hyderabad which confers jurisdiction over the assessee, the fact remains that the issue was pending before the ADIT (International Taxation), Circle 2(1), New Delhi and that the assessment was already under process by issuing relevant notice for assessment and the assessee filed objection for issue of notice. In spite of this, the ADIT (International Taxation)-II, Hyderabad assumed jurisdiction over the assessee and started proceedings u/s. 143(3) r.w.s. 144 of the Act. The ADIT (International Taxation)-II, Hyderabad cannot assume jurisdiction without valid transfer order u/s. 127 of the Act from the ADIT (International Taxation)-II, New Delhi. There should be due procedure of transfer to be followed. The power of transfer, vested in the authorities mentioned in section 127, is a quasi judicial one. Such a power has to be exercised in a fair and reasonable manner and not in an arbitrary and mechanical way. Passing a reasoned order is one of the requirement of fairness in action. Before transferring a case notice should be given by the transferring authority to the assessee. Such notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was by reason of any satisfaction having been reached by the Commissioner that it was not possible to communicate the specific reasons or in case such reasons were disclosed, there was every possibility of interfering with the enquiry that had to be taken after the transfer of the case. Therefore, the order of transfer was quashed with a liberty to proceed with the transfer of petitioner's case afresh according to law keeping in view of the legal position declared in the judgement. 26. It was held in the case of Kaasivisalamma vs. ACIT (93 TTJ 537) (Chennai) that the primary condition for assumption of jurisdiction for an assessment is that the Assessing Officer must initially have the jurisdiction to assess the income of the assessee in assessment or re-assessment. If the initial officer has no jurisdiction to frame an assessment on a person, then it is not open to such an officer to assume jurisdiction to reopen the assessment. Therefore, in order that the Assessing Officer should claim jurisdiction over the assessee, he must have specific authority or order by which the jurisdiction is conferred on him. In that event alone he could claim that he has jurisdiction to fram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not saved by showing that the reasons exist in the file although not communicated to the assessee. 30. Thus, not only the reasons are to be recorded prior to the transfer of records but also communicated to the person concerned. Mere recording of reasons without communicating the same to the concerned person is against the provisions of section 127 of the Act. Further, we make it clear that here we are concerned with the assuming of jurisdiction by the ADIT (IT)-II, Hyderabad over the case of the assessee. In our opinion, there is nothing placed on record to show that the person who has passed the impugned assessment order is having jurisdiction over this assessee when the assessee s present case is pending with the ADIT, New Delhi. The notification dated 28.9.2007 itself cannot confer jurisdiction to the Assessing Officer in Hyderabad, when return of income of the assessee was pending with the Assessing Officer, New Delhi. The learned DR taken a plea before us that no specific order is required from the CCIT from whose jurisdiction the case of the assessee is transferred to the jurisdiction of another CCIT in Hyderabad in view of notification dated 28.9.2007; the result of pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd., as agent of Platex Ltd., u/s 163 of the IT Act. It is also the contention of the Assessing Officer that the certificate u/s 195(2) of the Act issued by the DCIT, Circle 16(3) is not a correct certificate. The Assessing Officer is of the view that even if a certificate was issued, the Indian company remitting; the amount can be treated as an agent within the meaning of sec. 163 of the Act and an assessment can be made against the Indian company. The Assessing Officer is also of the view that he possesses jurisdiction to assess PVP Ventures Ltd., as according to the Assessing Officer the said company filed an application u/s 195(2) of the Act before the Assessing Officer at Hyderabad. Therefore, the Assessing Officer initiated proceedings u/s 163 and passed an order for the Assessment Years 2007-08 and 2008-09 together treating PVP Ventures Ltd., as an agent of Platex Ltd. He also issued notice u/s 148 for the Assessment Years 2007-08 and 2008-09. As the assessee did not comply with the notice issued, he completed the assessment u/s 144 r.w.s. 147 of the IT Act. He determined the total income at ₹ 5,30,31,148/- for the Assessment Year 2007-08 and ₹ 54,14,61,942/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the fact that when he is taxing the agent under sec. 163 of the Act, he can consider only such amount received by the non-resident either from the Indian company or through the Indian Company. The said amount of ₹ 49,54,68,397 was neither paid by the Indian Company nor received by the foreign company. 34. In view of the above, the CIT(A) held that the incomes determined to be assessed treating the Indian company as agent of the non-resident cannot be sustained. As he had held that the Indian company PVP Ventures Ltd., cannot be treated as agent of the foreign company and that the incomes determined by the Assessing Officer cannot be sustained, the assessment orders passed under sec. 144 of the Act for the Assessment years 2007-08 2008-09 were annulled by him. 35. For the A.Y. 2007-08 the CIT(A) had given relief on various counts as enumerated above. However, the Revenue raised only one ground as ground No. 2 as under: The CIT(A) is not correct in observing that PVP Ventures Pvt. Ltd., discharged its obligation of paying tax as per authorisation at the time of remittance itself and therefore, it cannot again be asked to pay tax on the amount remitted. 36. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in adding ₹ 49,54,68,397 representing the estimated interest when the foreign company waived its right to charge interest. The CIT(A) ought to have considered the detailed reasoning mentioned in the assessment order for making the addition. (e) The CIT(A) is not correct in observing that the Assessing Officer ought to have considered the fact that when he is taxing the agent u/s. 163 he can consider only such amount received by the non-resident either from the Indian Company or through the Indian company. 38. Facts in this assessment year are similar to the assessment year 2007-08. The first effective ground (ground No. (2) is as under: The CIT(A) is not correct in observing that PVP Ventures Pvt. Ltd., discharge its obligation of paying tax as per authorisation at the time of remittance itself and therefore, it cannot again be asked to pay tax on the amount remitted. 39. With regard to the above ground the CIT(A) observed that the amalgamated company PVP Ventures Pvt. Ltd., before its amalgamation issued convertible debentures in favour of Platex Ltd., a company registered in Mauritius with its office at 10, Frere Felix de Valois Street, Port Louis, Mauritius. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder sec. 195(2) is not correct and can be cancelled. But the order under sec. 195(2) issued by the Assessing Officer is still existing and is not cancelled by any valid order. 42. As contended by the assessee, the payments were made by PVP Ventures (P) Ltd., to the foreign company and the said company did not exist by the time the proceedings under sec. 163 commenced. The Assessing Officer mentioned clearly that in view of the provisions of sec. 163 (l)(c) of the Act, the PVP Ventures Ltd., is treated as agent. As claimed by the assessee the said clause mentions that from or through whom the nonresident is in receipt of any income, whether directly or indirectly; or . The said provision makes it very, clear that only when the Indian company remitted the amount the said company can be treated as agent. In the present situation the company PVP Ventures Ltd., did not remit the amount to the foreign company. Therefore, the said clause has no application to the facts of the case. It is not the case of the Assessing Officer that any other clause would apply to the facts of the case. In view of the above, the CIT(A) was of the view that the orders passed u/s. 163 of the IT Act are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as the order passed u/s. 163 itself is bad in law. This ground is rejected. 46. The next effective grounds 4 and 5 which are as under: (4) The CIT(A) is not correct in observing that the Assessing Officer is not justified in adding ₹ 49,54,68,397 representing the estimated interest when the foreign company waived its right to charge interest. The CIT(A) ought to have considered the detailed reasoning mentioned in the assessment order for making the addition. (5) The CIT(A) is not correct in observing that the Assessing Officer ought to have considered the fact that when he is taxing the agent u/s. 163 he can consider only such amount received by the nonresident either from the Indian Company or through the Indian company. 47. With regard to the above grounds of appeal, the CIT(A) observed that the Assessing Officer also ought to have considered the fact that when he is taxing the agent under section 163 of the Act, he can consider only such amount received by the non-resident either from the Indian company or through the Indian company. The said amount of ₹ 49,54,68,397 was neither paid by the Indian company nor received by the foreign company. 48. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exist by the due date for filing the return of income u/s 139(1) ended. In view of the fact that the company which had remitted the amounts was amalgamated with another company and hence the tax liability lies with the resultant company. The observation of the CIT(A) that the order u/s 195(2) issued by the assessing officer is still existing and not cancelled by any valid order. In view of the fact that the order u/s 195(2) has been cancelled vide orders dated 20-05-2009. (6) The CIT(A) is not correct in observing that the provisions of section 163(1)(c) has no application to the facts of the case. In view of the fact that PVP Ventures Pvt. Ltd. which had remitted the amounts to Platex Limited was amalgamated with PVP Ventures Ltd., and hence PVP Ventures Ltd., is liable for all the tax matters relating to PVP Ventures Pvt. Ltd. (7) The CIT(A) ought not to have held that orders passed u/s. 163 of the IT Act are not proper and cannot be sustained. 51. First we will take up the issues relating to cancellation of order passed by the Assessing Officer u/s. 163 by placing reliance on the judgement of Supreme Court in the case of H.L. Sud, ITO vs. Tata Engineering Locomotive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co., Ltd. (71 ITR 457). 51.3 According to the AR, no order can be made determining the income as an agent in respect of the principal unless there is a valued order passed u/s. 163 of the IT Act. For the purpose, here relied on the judgement of Calcutta High Court in the case of CIT vs. Alfred Herbert (India) Pvt. Ltd. (159 ITR 583). Further he submitted that M/s. PVP Ventures Ltd., cannot be treated as a successor of the PVP Ventures Pvt. Ltd., as there is no provision in the Act to do so and even section 170 of the Income-tax Act permits it only when the predecessor cannot be found. For this proposition, he relied on the judgement of MP High Court in the of CIT vs. Hukumchand Mohanlal (64 ITR 341) (MP). 51.4 We have heard both the parties and perused the material on record. This ground relating to passing of common order for three years u/s. 163 by the Assessing Officer would go to the root of the issue As seen from the facts of the case, the Assessing Officer passed only one order dated 13.10.2008 for all the three assessment years i.e., 2007-08, 2008-09 and 2009-10, though he is required to pass independent and separate order for each assessment year by issuing separate n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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