TMI Blog2019 (7) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... hile, the Authorized Representative of the petitioner-Company appeared before the respondent and submitted the documents and a reply to the showcause notice. The dates and events mentioned would prove that there is no breach of violation of principles of natural justice.This Court does not find any merit in the contention that the principles of natural justice has been violated. The Dispute Resolution Panel is empowered by the Act to consider the objections, and pass suitable orders, viz., may confirm, reduce or enhance the variations proposed in the draft order. The Assessing Officer is bound to pass final Assessment Orders in tune with the order of the Dispute Resolution Panel. Against the final order, the First Appeal lies before the CIT(A) u/s 246 and Second Appeal lies before the Appellate Tribunal u/s 253. Thereafter, an appeal lies to the High Court u/s 260A on the substantial questions of law. In the matter on hand, except the two grounds dealt with supra, no other good reasons pleaded by the petitioners to bypass the statutory remedies. Keeping in mind, the principles laid down in the above decisions and the facts of this case, in my opinion, these Writ Petitions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2012 stipulates conditions for an Indian Company intending to buy-back shares from non-resident shareholders. In accordance with the Circular, CTSIPL ascertained valuation of its shares through SEBI registered Category-I Merchant Banker and the price per share of the Company, based on the valuation undertaken using the Discounted Free Cash Flow [ DCF ] method, was ₹ 23,915.10. The Board of Directors of CTSIPL resolved that the shares could be bought by CTSIPL at the value of ₹ 23,915/- per share under Section 77 A of the Companies Act. 6. The petitioners would claim that CTSIPL completed the buy-back of shares on 22.05.2013 and the non-resident shareholders received their consideration in accordance with the relevant regulations under FEMA and the Companies Act. The Reserve Bank of India has accepted the said value and the Form FC-TRS was duly filed with the Authorized Dealer Bank and the same was approved. The petitioners filed their returns of income on 29.09.2014 and 29.11.2014 along with the relevant Transfer Price Certificates in Form 3CEB. The Assessing Officer referred the determination of Arms Length Price [ ALP ] for buy-back of shares to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The impugned Draft Assessment Orders have been assailed in these Writ Petitions directly before the High Court invoking under Article 226 of the Constitution of India, contending that the impugned orders have been passed in violation of the principles of natural justice and in contravention of Section 92CA(4) of the Act. According to the petitioners, when the Transfer Pricing Officer had determined Arms Length Price in view of Section 92CA (4) of the IT Act, the first respondent had absolutely no power to differ from the Transfer Pricing Officer. 10. A detailed counter affidavit has been filed by the first respondent, primarily questioning the maintainability of this Writ Petition. It is contended that the Writ Petition is liable to be dismissed in limini as the petitioners have an effective and efficacious alternative remedy under the IT Act. It is stated that the Parliament in order to encourage Foreign Investors and to provide them with effective and quick appeal remedy against the assessment orders passed by the Assessing Officers, amended the Income Tax Act in Finance Act, 2009 by introducing a new Section 144C. As per the said Section, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessing officer granted additional time till 06.05.2016. 8 04.05.2016 Request letter to Commissioner to refer the case to TPO 9 23.05.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Visvanathan filed responses to questions which were not answered in statement. 23 28.12.2017 Upon repetitive requests the assessee filed its submission to SCN. 24 31.12.2017 Draft Assessment Order passed. 12. It is alleged that though all documents sought for by the first respondent were readily available with the petitioners, they deliberately withheld by producing them. The petitioners have been dodging the Department for several months by evading the notices and by not filing the required documents and the first respondent has to pass orders on or before 31.12.2017 (before expiry of statutory time). The documentation for cost of acquisition of shares and valuation report of shares of CTS India and related documents and clarifications were sought for by the respondent on 13.04.2016 08.04.2016 respectively, but the complete details were furnished only on 08.11.2017 i.e., after lapse of 1 1/2 years. Since the valuation of shares is a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) valuation of jewellery, - (i) the fair market value of jewellery shall be estimated to be the price which such jewellery would fetch if sold in the open market on the valuation date; (ii) in case the jewellery is received by the way of purchase on the valuation date, from a registered dealer, the invoice value of the jewellery shall be the fair market value; (iii) in case the jewellery is received by any other mode and the value of the jewellery exceeds rupees fifty thousand, then assessee may obtain the report of registered valuer in respect of the price it would fetch if sold in the open market on the valuation date; (b) valuation of archaeological collections, drawings, paintings, sculptures or any work of art,- (i) the fair market value of archaeological collections, drawings, paintings, sculptures or any work of art (hereinafter referred as artistic work) shall be estimated to be price which it would fetch if sold in the open market on the valuation date; (ii) in case the artistic work is received by the way of purchase on the valuation date, from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce mentality' and aggressive tax planning can be deciphered from the various arrangements carried out by the petitioner. The valuation of shares did not reveal the statements recorded by the first respondent from Shri Navin Vohra, Director, Ernst Young, Merchant Banking Division. CTS India had carried out scheme as approved by the High Court of Madras in June 2016. The valuation approved by the High Court that has been used in current DCF valuation carried out by the first respondent and by using the same Free Cash Flow estimated in DCF valuation for FY-2019 to FY 2023, it is proved that the Fair Market Value was overvalued. The following tabular column is extracted from the counter to show that the shares were overvalued:- FY Free Cash Flows as per Valuation on FY 13 (A) Free Cash Flows as per Valuation on FY 16 (B) Diff in Free Cash Flows (A-B) % Variation with respect to FY 13 (A) FY 17 26565 23313 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 impleaded in a personal capacity in the Writ Petitions and according to the second respondent, she was impleaded only to browbeat her just because, she passed an adverse order against the petitioners. 18. A detailed rejoinder was filed by the petitioners disputing and denying the allegations made in the counter affidavit. In the rejoinder, the petitioners reiterated the grounds taken in the Writ Petitions and it is further stated that the Fair Market Value and Arms Length Price are always used in accounting parlance as synonymous and interchangeable to show the nature of price agreed to between unrelated parties and the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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 Regulations issued by the RBI under the FEMA, the value of the shares were determined by appointing a SEBI registered Category-I Merchant Banker by using the DCF Method. The entire transaction was completed on 22.05.2013 and necessary Forms were filed before the concerned Authorities. The income-tax Returns of the petitioners dated 29.09.2014 29.11.2014, were accepted by the Authorities. (ii) The character of income on buy-back of shares is undoubtedly a capital gain. Section 14 of the IT Act describes Heads of Income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 Act. (ix) If the Draft Assessment Order has been passed accepting the Arms Length Price determined by the Transfer Pricing Officer, objections can be filed by the petitioners before the Dispute Resolution Panel. Since the impugned orders came to be passed contrary to Sections 46A and 92CA of the IT Act and Circular issued by the Central Board of Direct Taxes and in violation of the principles of natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 filed its submissions on 28.12.2015 i.e., after lapse of 91 days. A notice under Section 142(1) of the IT Act was issued to the assessee to appear for enquiry on 18.04.2016. It is also seen that even thereafter the petitioners herein were not vigilant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 both or others may surely protract; and notice does mean communication of materials since no one can meet an unknown ground. Otherwise hearing beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 have made no difference, the admitted or indisputable facts speaking for themselves. Where on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vi) State 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with which the Appellant was benefited under the aforesaid Notification becomes refundable. Even after the notice is issued, the Appellant cannot 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 make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished the copies of the Income Tax returns. The petitioner had filed his reply dated 06.07.2015 before the 2nd respondent. The 2nd respondent also afforded personal hearing on 21.07.2015, 06.08.2015 and 12.08.2015. The petitioner was represented by his counsel before the 2nd respondent 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 circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany to lay a challenge to the impugned reassessment order dated 18.12.2017 before this Court at this stage. 29. In the first decision cited by the learned Additional Solicitor General, the assessee in pursuance of the summons dated 03.09.2013 and 12.11.2013 appeared before the Officials on 18.11.2013 and also filed a reply dated 06.07.2015 before the second respondent. The second 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer failed to follow the requirement of law and had taken a different view, the Dispute Resolution Panel has no jurisdiction to consider the objection of the petitioners. 34. I do not find any merit in the above submission. Sub-sections 6 and 7 of Section 144 C of the IT Act deals with the duties and powers of Dispute Resolution Panel and for ready reference, it is extracted hereunder:- Section 144 C - Reference to dispute resolution panel (1) The Assessing Officer 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on.-For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee.] (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Commissioner of Income-tax-I Vs. Cushman and Wakefield (India) (P.) Ltd., [(2014) 46 taxmann.com 317 (Delhi) , held that the Assessing Officer is not bound to accept the Arms Length Price as determined by the Transfer Pricing Officer. The Assessing Officer can always be persuaded by the assessee at that stage to reject the Transfer Pricing Officer's Report and proceed to determine by the Arms Length Price himself. 37. It is to be noted that the Income Tax Act, 1961 is a complete and contained code as it provides for a complete mechanism for redressal of the grievance of the assessee, including Foreign Companies. In the case of Foreign Companies, the Assessing Officer instead of passing final order under Section 143 (3) of the IT Act, passes the Draft Assessment Orders to enable the assessee to make an objection before the Dispute Resolution Panel, which consists of experts in this field. The Dispute Resolution Panel is empowered by the Act to consider the objections, and pass suitable orders, viz., may confirm, reduce or enhance the variations proposed in the draft order. The Assessing Officer is bound to pass final Assessment Orders in tune with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act is not implemented retrospectively, but they have determined the value of the shares based on the Fair Market Value and the demand is to collect the price quoted over and above the Fair Market Value under Section 56(1) of the IT Act. 41. The learned Senior Counsel for the petitioners has also cited catena of decisions on the principles of law, rule of law, legal effect of RBI directions and interpretation of taxing statutes, retrospective operation of statutes and taxation. There is no quarrel over the principles laid down therein, but in the considered view of this case, the discussions referred supra, the decisions relied on by the learned Senior Counsel for the petitioners have no application to the facts of this case. Further, it is not appropriate to consider those cases at this stage. The rights and contentions of the parties are left open in any proceedings that may be adopted hereafter. 42. As rightly pointed out in the counter affidavit, the Draft Assessment Orders have been passed in discharging the official duty of the second respondent. Even though the second respondent was an Assessing Officer for the Cognizant Technology Soluti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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