TMI BlogHigh Pitched assessment in accordance with directions of DRP, appeal of assesse has been allowed by Tribunal. A case of continuing harassment of assesse and there seems no ease of doing business if you are in clutches of Tax authorities.X X X X Extracts X X X X X X X X Extracts X X X X ..... High Pitched assessment in accordance with directions of DRP, appeal of assesse has been allowed by Tribunal. A case of continuing harassment of assesse and there seems no ease of doing business if you are in clutches of Tax authorities. - By: - CA DEV KUMAR KOTHARI - Income Tax - Dated:- 22-8-2019 - - Recent case: 2019 (8) TMI 663 - ITAT DELHI M/S. ADIDAS INDIA MARKETING (P.) LTD., VERSUS INCOME TAX OFFICER, WARD-1 (3) , NEW DELHI In this article some other related and incidental issues are also discussed by author, though the same were not a part of case before the Tribunal. Sections 5 and 9 of the Income-tax Act, 1961 considered in the judgment. Other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions which may be incidental and related to issue of insurance claims in different situations like - Sections 2 for certain definitions, 28, 41 , 45 , 56 , 145 etc. of the Income-tax Act, 1961. Assessment was made u/s 143.3 read with S.144C in accordance with directions and order of the Dispute Resolution Panel. T otal income of ₹ 1,10,22,13,698 , before set-off of brought forward losses was determined , as against loss of ₹ 12,61,25,995 returned by the appellant. Appeal has been allowed by the Tribunal. This shows the nature of high pitched assessment. Concepts involved: Insurance policy for stock-in-trade is for tangible assets. (Policy take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by assesse). Any amount receivable or received under such policy will go to reduce the amount of business loss. Therefore, for ascertaining net loss and impact on loss of holding company in subsidiary the amount received by subsidiary for loss of stock was reduced by amount of insurance claim allowed for stock of loss suffered by subsidiary. Insurance policy taken by Adidas AG from Zurich insurance is for securing investment made in subsidiaries that is financial interest, is for intangible asset, and is larger in scope. Policy taken by holding company is of nature of the Global Insurance Policy (GIP), Net loss to subsidiary to ascertain loss of holding company in financial assets: A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny amount receivable or received under policy for stock in trade will go to reduce the amount of business loss due to loss of stock. Therefore, for ascertaining net loss and impact on loss of holding company in subsidiary the amount received by subsidiary for loss of stock was reduced by amount of insurance claim allowed for loss of stock-in-trade, suffered by subsidiary. Two different type of losses: The interest insured by the assesse for policy to ensure stock, and the interest insured by the Adidas AG for securing loss in investments in subsidiary companies are two different interest . It can also be analysed and emphasized for following reasons: Proposer are different. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Person having insurable interest are different. Claimant are different. Person receiving insurance claim are different. (Per author: in some situations one may receive claim on behalf of other, or as nominee or legal heir etc. that will not make difference) Accounting and Taxation aspect: Subsidiary company receiving insurance claim for stock will account for claim received as income and it will be included in taxable income where income of subsidiary company is taxable. This will be in accordance with applicable law and Accounting Standards. If insurance claim is of capital nature to any extent ( even some stocks can be on capital account for estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lishment or expansion of units, though policy may be described as a policy for stock-in-trade). In such cases, the claim received will go to reduce cost of project. This is because stock was not claimed as business expenditure by including in stock-in-trade debited to P l account. Holding company receiving insurance claim for loss of or loss in value of investments will be accounted for as capital receipt or income of holding company as per nature fo investments and applicable law of the country. Taxation will depend on nature being capital or revenue and also the law of the country in which policy is taken or insurance claim is received. A holding company receiving such compensation, as per their policy d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision may part with full or some of amount of compensation to subsidiary, or may not part with any amount to subsidiary. If an amount is paid by holding company to subsidiary whether out of insurance claim for loss of investment or out of other sources to support the subsidiary company, it will not be income of subsidiary company but will be capital receipt. Mere sharing of insurance claim by holding company with subsidiary company will not render insurance claim received by holding company, in foreign country as income accruing or arising in India. Mere correspondence and discussions for how to share insurance claim will also not render the insurance claim as accruing as income in India. Some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other issues: The order of assessment was framed by the assessing officer in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as DRP ) under Section 143(3) read with Section 144C of the Income-tax Act, 1961 On reading of judgment it is clear that the assessment order was a very high pitched assessment. T otal income of ₹ 1,10,22,13,698, before set-off of brought forward losses was determined , as against loss of ₹ 12,61,25,995 returned by the appellant. In concluding para we find that the In the result, the appeal of the assessee is allowed Therefore, we find that even DRP has not been able to reduce high pitched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. Author had earlier in an article written that DRP will not reduce litigation, rather litigation will be much more. This seems to be correct forecast in view of several reported judgments in relation to assessments made in accordance with directions of DRP. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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