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TMI Blog2019 (7) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... aft assessment order passed by the respondent under Section 143 (3) read with Section 144 C(1) of the Income Tax Act, 1961, dated 31.12.2017 and for a direction to pass fresh assessment in conformity with the order bearing F.No.C-101/TPO-1, AY.2014-15, dated 31.10.2017, issued by the Transfer Pricing Officer (Joint Commissioner of Income Tax - TP01), Chennai and the order bearing No.ITBA/TPO/F/92CA3/2017-18/1007519415(1), dated 01.11.2017, issued by the Transfer Pricing Officer (Assistant Commissioner of Income Tax - TPO Circle 1(1), Chennai, respectively. 4. According to the petitioners, during the year 2013 CTSIPL had substantial cash surplus, for which, there was no immediate requirement for the Company. The buy-back of shares was in the best interest of shareholders and hence, CTSIPL identified buy-back of shares under Section 77A of the Companies Act, 1956. 5. The petitioners would state that since all the shareholders of CTSIPL were non-residents, the buy-back had to be done in accordance with the regulations farmed by the Reserve Bank of India under the Foreign Exchange Management Act, 1999 ["FEMA"]. The RBI Circular on Foreign Direct Investment ["FDI"], dated 02.07.2012 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to why the shares should not be valued at Rs. 8,512/- and why the excess consideration over the said Fair Market Value not to be assessed to tax under Section 56(1) of the IT Act. 8. The petitioners would claim that the Authorized Representatives of their Company replied to the show-cause notice on 26.12.2017 stating that there was no possibility of giving reply within the specified time and sought for reasonable time. But, on 27.12.2017, the first respondent sent an e-mail to the Authorized Representatives of the petitioners to attend the hearing on 28.12.2017, as a last and final opportunity. The Authorized Representatives appeared and placed before the first respondent the fact that the valuation of the shares had been accepted by the RBI and TPO and the Returns of the other two shareholders had been accepted by the Department. The petitioners further pointed out that the CTSIPL declared the amount of money paid towards buy-back in the financial statements and Form 3CEB and the Assessing Officer had accepted the value so paid. But, the impugned Draft Assessment Orders came to be passed on 31.12.2017. 9. The impugned Draft Assessment Orders have been assailed in these Writ P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 143(2) was issued to the assessee and directed it to appear on 15.09.2015. No response from the petitioner. 2 16.09.2015 Email was sent to the assessee requesting it to acknowledge the receipt of the notice and file necessary documents in favour of its claims. Again, there was a non-compliance from the assessee regarding the above said notice. 3 28.09.2015 Authorized Representative of petitioner was called and the notice was once again served on the assessee. 4 28.12.2015 After 91 days of receipt of the notice the assessee filed its submission. 5 13.04.2016 Notice under Section 142(1) was issued to the assessee and requested to appear on 18.04.2016 with specified documents. There was a noncompliance by the petitioner by way of non-filling of requested documents. So, case was posted on 29.04.2016 to furnish Form 3CEB, Share Purchase Agreement, Share Valuation Report, Share Holding Pattern, Bank Statements Reflecting Receipts and Computation of Capital Gains. 6 19.04.2016 Assessee filed its 3CEB report alone without any other document. 7 29.04.2016 Petitioner appeared without submission and sought time to file the documents. Upon its request the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent took six weeks time to arrive the value of shares. Further, the first respondent summoned and recorded the statement of Senior Executives of CTS India and its auditors to arrive at its conclusion before issuing the show-cause notice, dated 22.12.2017. 13. It is further stated that CTS India being the subsidiary of the petitioners had not declared any dividend since 2003 in order to avoid paying Dividend Distribution Tax ("DDT") under Section 115O of the IT Act. The only reason to buy-back the shares because of new provision introduced vide Section 115QA of the IT Act, viz., Buyback Distribution Tax ["BBDT"] from 01.06.2013 imposing tax at 20% of the buy-back after 01.06.2013. It is alleged that with the singular intention to avoid DDT and BBDT, the petitioners had devised the dubious transaction paying exorbitant amount for the shares, so that it could take undue and unintended benefit of India - Mauritius tax treaty and thereby indulged in treaty abuse. 14. According to the first respondent, Section 46A of the IT Act is applicable only in cases where buy-back shares are for genuine purpose. The first respondent has given the benefit of Section 46A and Indian-Mauritius tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would fetch if sold in the open market on the valuation date; (c) valuation of shares and securities, - (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely,- (i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,- (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange [(b) the fair market value of unquoted equity shares shall be the value, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Act would be applicable. The respondents have emphatically denied that the impugned order is premeditated one, even though, the same Deputy Commissioner / second respondent herein, while sitting as a Assessing Officer for CTS India raised the same issue at the assessment of CTS India. It is stated that the principles of res judicata / stare decisis are not applicable to the Income Tax Proceedings. The Income Tax Act recognises that if new information is available to the concerned Assessing Officer, the assessment can be reopened under Section 147 / 148 of the IT Act. The first respondent after unearthing new information like valuation report of the year 2016, Scheme of Arrangement as approved by the High Court, statements of Senior Executives of CTS India and its Auditors, Financials of subsequent years, passed the Draft Assessment Order and the second respondent in her personal capacity cannot be impleaded in view of Section 293 of the IT Act. 17. The second respondent has filed a separate counter affidavit denying the allegations made against her and it is stated that Draft Assessment Orders have been passed in her official capacity, hence she cannot be imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent. 21. In the instant case, the respondent re-opened the assessment of the petitioners on the ground that the shares were overvalued. The first respondent held that the Fair Market Value is to be determined under 11UA of the Rules of IT Act and the determination of value of shares under DCF method for the purpose of RBI application is incorrect and passed the Draft Assessment Orders. The Cognizant (Mauritius) Limited seeks exemption in payment of income tax under India - Mauritius Double Tax Avoidance Agreement and in the case of US Company Rs. 134,05,06,915/- has been paid as capital gain at the rate of 10%, but the Revenue claims tax at the rate of 30% for the difference paid over and above the Fair Market Value under Section 56(1) of the IT Act. 22. Mr.Gopal Subramanium, learned Senior Counsel for the petitioners has made the following submissions:- (i) The petitioners / Cognizant (Mauritius) Limited and Cognizant Technology Solutions Corporation, United States of America are the shareholders of the CTSIPL. The Indian Company had cash surplus in the year 2013 in its commercial wisdom and decided to buy-back of shares. Since the shareholders are non-residents, as per the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was Rs. 8,512/- and is attempting to tax on the remaining amount under Section 115 QA of the IT Act. Section 115QA was inserted in the Act and came to effect from 01.06.2013 and this Section cannot be retrospectively implemented / applied for imposing tax on the petitioners, which transactions had completed on 22.05.2013. (vii) Though the respondent issued notice in the year 2017 and the petitioners supplied relevant documents and filed replies, the final show-cause notice was issued only on 22.12.2017, but subsequently, without proving ample opportunity, the Draft Assessment Orders dated 31.12.2017 came to be passed without any Authority of law; in violation of Rule of law and complete failure of natural justice. (viii) Section 90 of the IT Act, a Double Taxation Avoidance Treaty was entered between the Government of India and Mauritius and as per the Treaty Agreement, the Cognizant (Mauritius) is entitled for exemption to tax for capital gain and when the Treaty was in force, the respondent has no authority to describe the transaction as dubious and colourable exercise and the transaction as sham so as to bring a portion of the amount to tax under Section 56(1) of the IT A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Senior Counsel, assisted by Mr.Srinath Sridevan, learned counsel for the petitioners and Mr.G.Rajagopalan, learned Additional Solicitor General, assisted by Mr.Karthik Ranganathan, learned Senior Standing Counsel for Income Tax Department and perused the entire materials placed on record. 25. In the instant case, the questions arise for consideration are whether the principles of natural justice has been violated as alleged by the petitioners and whether these Writ Petitions are maintainable at this stage. 26. It is an admitted fact that the Income Tax Returns of the petitioners were filed on 29.09.2014 and 29.11.2014 respectively. The respondent issued notice under Section 143(2) of the IT Act to the assessees dated 28.08.2015, directing them to appear for enquiry on 15.09.2015. It is the case of the respondents that no response was forthcoming from the petitioners and hence, intimation was sent to the assessees on 16.09.2015, through e-mail to file documents in favour of their claim. Again there was no response from the petitioners, but on 28.09.2015, the Authorized Representative of the petitioners was called and a notice was served. It is not disputed that the assessee fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it contained. The assessment in this case and in the connected appeal, we are told, was above the figure of Rs. 55 lakhs and it was meet and proper when dealing with a matter of this magnitude not to employ unnecessary haste and show impatience, particularly when it was known to the department that the books of the assessee were in the custody of the Sub- Divisional Officer, Narayanganj. We think that both the Income Tax Officer and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion. It is thus a fit case for the exercise of our power under Article 136." (ii) Mohinder Singh Gill Vs. The CEC [(1978) 1 SCC 405] "62. So let us examine them each. Speed in action versus soundness of judgment is the first dilemma. Punnuswami has emphasised what is implicit in Article 329(b) that once the process of election has started, it should not be interrupted since the tempo may slow down and the early constitution of an elected parliament may be halted. Therefore, think twice before obligating a hearing at a critical stage when a quick re-poll is the call. The point is well taken. A fair hearing with full notice to bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not possible as in the case of a fleeing person whose passport has to be impounded lest he should evade the course of justice or a dangerous nuisance needs immediate abatement, the action may be taken followed immediately by a hearing for the purpose of sustaining or setting aside the action to the extent feasible. It is quite on the cards that the Election Commission if pressed by circumstances, may give a short hearing. In any view, it is not easy to appreciate whether before further steps got under way he could not have afforded an opportunity of hearing the parties, and revoke the earlier directions. We do not wish to disclose our mind on what, in the critical circumstances, should have been done for a fairplay of fair hearing. This is a matter pre-eminently for the Election Tribunal to judge, having before him the vivified totality of all the factors. All that we need emphasize is that the content of natural justice is a dependent variable, not an easy casualty." (iii) S.L.Kapoor vs. Jagmohan [(1980) 4 SCC 379] "17. Linked with this question is the question whether the failure to observe natural justice does at all matter if the observance of natural justice would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate of Maharashtra Vs. Jalgaon Municipal Council & Ors. [(2003) 9 SCC 731 "30. It is fundamental principle of fair hearing incorporated in the doctrine of natural justice and as a rule of universal obligation that all administrative acts or decisions affecting rights of individuals must comply with the principles of natural justice and the person or persons sought to be affected adversely must be afforded not only an opportunity of hearing but a fair opportunity of hearing. The State must act fairly just the same as anyone else legitimately expected to do and where the State action fails to satisfy the test it is liable to be struck down by the Courts in exercise of their judicial review jurisdiction. However, warns Prof. H.W.R. Wade that the principle is flexible. 'The judges, anxious as always to preserve some freedom of manoeuvre, emphasise that 'it is not possible to lay down rigid rules as to when the principles of natural justice are to apply: nor as to their scope and extent. Everything depends on the subject-matter'. Their application, resting as it does upon statutory implication, must always be in conformity with the scheme of the Act and with the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot take any plea to retain the said amount on any ground whatsoever as it is bound by the dicta in R.C. Tobacco (supra). Likewise, even the officer who passed the order has no choice but to follow the dicta in R.C. Tobacco (supra). It is important to note that as far as quantification of the amount is concerned, it is not disputed at all. In such a situation, issuance of notice would be an empty formality and we are of the firm opinion that the case stands covered by 'useless formality theory'." (viii) Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II [(2016) 15 SCC 785] "Excise - Valuation - Principles of natural justice - Right to cross-examination of witness before adjudicating authority - Denial of, if rendered order against assessee a nullity - Held, not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected." (ix) Krishna Mohan Medical College & Hospital vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent on 12.08.2015 and submitted that no penalty be imposed in their case since they have paid the entire Service Tax dues prior to issuance of show cause notice. Therefore, it is clear that the 2nd respondent has given an opportunity of personal hearing to the petitioner and he was also represented by his counsel before the 2nd respondent. The petitioner also filed his reply before the 2nd respondent, which was also considered by the 2nd respondent. Therefore, from the above, it is clear that there is no violation of principles of natural justice committed by the respondents. That being the case, the impugned order being an appealable order, the Writ Petition cannot be entertained. The judgment relied upon by the learned counsel for the respondent reported in 2014 (35) S.T.R. 65 (P & H) [Barnala Builders & Property Consultants Vs. Dy. C.C.E & S.T., Dera Bassi] squarely applies to the facts and circumstances of the present case. Therefore, without exhausting the alternative remedy by way of an appeal, the Writ Petition cannot be entertained. Therefore, it is open to the petitioner to challenge the impugned order before the Commissioner (Appeals) by way of an appeal." (ii) M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond respondent provided personal hearings on 21.07.2015, 06.08.2015 and 12.08.2015. The assessee was represented by his counsel on 12.08.2015. Considering the above facts, this Court held that there is no violation of principles of natural justice. 30. In the second decision of the Karnataka High Court, the Reassessment Order of the Deputy Commissioner of Income Tax was sought to be assailed directly before the High Court, alleging non-grant of adequate opportunity to raise objections to the Reassessment Proceedings. Taking note of the fact that the petitioner-Foreign Company did not respond to the communications of the Revenue nor raised objections to the proposed reassessment for assessing its income, out of the works executed by it in India, rejected the case of the assessee. 31. Section 115QA of the IT Act, came into force from 01.06.2013. After insertion of the above provision, purchase of its own shares by the Company under the provisions of Section 77A of the Companies Act is chargeable to Income Tax Act as Dividend Distribution Tax (DDT). The position before 01.06.2013 was that buy-back of shares would be taxed as capital gain in the hands of the recipient in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,- (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,- (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if- (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153 [or section 153B], pass the assessment order under sub-section (3) within one month from the end of the month in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under subsection (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 [or section 153B], the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. (14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee. (14A) The provisions of this section shall not apply to any assessment or reassessment order passed by the Assessing Officer with the prior approval of the Commissioner as provided in sub-section (12) of section 144BA. (15) For the purposes of this section,- (a) "Dispute Resolution Panel" means a collegium comprising of three Commissioners of Income-tax constituted by the Board for this purpose; (b) "eligible assessee" means,- (i) any person in whose case the variation referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Against the final order, the First Appeal lies before the Commissioner of Income Tax (Appeals) under Section 246 of the IT Act and Second Appeal lies before the Appellate Tribunal under Section 253 of the IT Act. Thereafter, an appeal lies to the High Court under Section 260A of the IT Act on the substantial questions of law. 38. Indisputably, the assessee determined value of the shares by following the DCF method. It is the contention of the learned Additional Solicitor General that the value determined by the SEBI registered Category-I Merchant Banker was for the purpose of RBI applications and the valuer issued disclaimer statement and according to them, the share value was not determined for the purpose of Income Tax Act. The Revenue, by referring 11UA of the Rules of IT Act, would claim that the share value is to be determined under the Rule and even if the DCF method is accepted, the value determined by the CTSIPL for approving the Scheme of Arrangement and Compromise fixed in the year 2016 has to be accepted. It is not out of place to mention that the value of the share was overpriced exorbitantly, which is evident from the application filed under the Scheme of Arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en posted in incharge of international transactions, hence she is very well within her jurisdiction to initiate the proceedings against the shareholders of the Company / the petitioners herein. But, unfortunately the Assessment Officer has been impleaded in these Writ Petitions and unwarranted comments have been made against her. The petitioners shall not indulge in this type of practice atleast in future cases. 43. In the decisions relied upon by the Revenue in Commission of Income-tax vs. Chhabil Dass Agarwal [(2013) 36 taxman.com 36 (SC)], Authorized Officer, State Bank of Travancore and another vs. Mathew K.C. [(2013) SCC Online SC 55], Hundai Motor India Ltd. vs. Secretary, Incometax Department [(2017) 86 taxmann.com 284 (Madras)], Inno Estates (P) Ltd. Vs. Dispute Resolution Panel-2, Bengaluru [(2017) 82 taxmann.com 477 (Madras)], Piramal Healthcare Ltd., Additional Commissioner of Income-tax, Range-7(1) Mumbai [(2012) 26 taxmann.com 56 (Bombay)], Ericsson AB vs. Additional Director of Income-tax [(2011) 197 TAXMAN 321 (Delhi)] and an unreported judgment of Karnataka High Court in M/s.Telekom Malaysia Berhad Vs. Union of India [W.P.No.5914 of 2018 (TIT), dated 12.02.2018], t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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