TMI Blog2019 (11) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT that before completion of assessment, the AO had indeed made enquiries into the foreign assignment allowance and after being satisfied about its non-taxability, the order u/s 143(3) was passed. On receipt of these objections, though the CIT did not agree with the submissions, we find that ultimately the reasons on which the CIT proceeded to pass the order did not contain any substantive legal or factual material by which he was able to prove that the said explanations suffered from any infirmity. Instead we note that the CIT ultimately merely set aside the assessment order directing AO to pass the order afresh in accordance with law which in our opinion was nothing but giving the AO second innings without establishing that the AO's order was erroneous as well as prejudicial to the interests of the Revenue Not only did the AO enquire into the issue of taxability of foreign assignment allowance received by the assessee but had consciously applied his mind to the facts made available before him and adopted the permissible view in law. We are of the considered view that the assessment order is not the result of non-enquiry or non-application of mind or assumption of wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss salary earned by the assessee s. The assessee s however claimed in their respective returns of income that the foreign assignment allowance component inter alia included in the gross salary was received by them outside India and that too for the services rendered outside India and therefore fell outside the ambit of total income u/s. 5(2) of the Act. In the assessments completed u/s 143(3), the AO accepted the assessee s claim for exclusion of such foreign assignment allowance from the ambit of total income. This action of the AO has been interfered with by the Ld. CIT u/s. 263 of the Act on the ground that AO s action is erroneous as well as prejudicial to the Revenue. The legal issue raised by all the assessee s in the present appeals, is against the action of the ld. CIT to usurp the revisional jurisdiction u/s. 263 of the Act. Since the facts and questions of law involved in all these cases are identical, we take the appeal of Shri Bodhisattva Chattopadhyay in ITA No.1314/Kol/2019as the lead case, the result of which will be applied mutatis mutandis in all other cases. 3. Briefly stated the facts of the lead case is that the assessee (Shri Bodhisattva Chatt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign assignment allowance was received outside India. The assessee also furnished a certificate from his employer that such allowance was paid for the services rendered outside India. Additionally, the assessee furnished the Switzerland tax documents for 2013 2014 evidencing that the foreign assignment allowance had been taxed in Switzerland. Taking note of the replies furnished by the assessee, the AO in his assessment order dated 23.12.2016 had accepted the Return of Income ( ROI ) filed by the assessee claiming the assignment allowance received by the assessee at Switzerland, as not taxable in India in terms of Section 5(2) of the Act. The AO accordingly assessed the total income of the assessee at ₹ 17,61,110/-. Subsequent to passing of the order u/s 143(3)of the Act, the ld. CIT issued show cause notice dt. 13-03-2019 to the assessee stating that the taxability of the foreign assignment allowance required reconsideration in view of the provisions of Section 5(2)(b) of the Act which was held erroneously to be non-taxable by the AO in the assessment order passed u/s 143(3) of the Act. 6. In reply, the assessee furnished his objections to the SCN. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various case laws and correct interpretation of the law in the facts of the case to examine and decide the issue of exemption from taxation on salary amounting to ₹ 42,97,092/-. Being aggrieved by the order of the ld. CIT, the assessee is in appeal before us. 7. In the grounds taken in the appeal, the assessee has challenged the legal validity of usurpation of revisional jurisdiction by the ld. CIT u/s 263 of the Act. According to assessee the ld. CIT has wrongly exercised the revisional jurisdiction u/s 263of the Act since the AO's order on this issue cannot be held to be erroneous as well as prejudicial to the interest of the revenue. It is the assessee s case that the AO passed the assessment order after considering the issue of taxability of foreign allowance and it was only after the AO examined the facts and the relevant documents that the AO took a plausible view on this issue, which is in consonance with this Tribunal s view laid on this precise issue in the case of DCIT Vs SudipMaity Others in ITA Nos. 428, 416 425/Kol/2017. According to the assessee therefore, on the facts of the case, the AO s action of accepting the assessee s claim for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the Ld. CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer. The Hon ble Supreme Court, held that for invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation along with supporting documents. In response, the ld. AR of the assessee furnished detailed replies through letters dated 30.11.2016, 05.12.2016 15.12.2016. In his letter dated 30.11.2016, available at Pages 54 to 55 of paper book, the AR explained during the relevant year the assessee was physically present outside India for more than 182 days and therefore he was a non-resident under Section 6 of the Act. Drawing attention to Section 5(2) of the Act, he submitted that the assessee being a non-resident, the income would be taxable in India only if the income was received or deemed to be received or accrued or deemed to accrue in India. The assessee submitted that since foreign assignment allowance of ₹ 42,97,092/- was received outside India for rendering services in Switzerland, the same did not form part of his total income. The AR of the assessee also furnished copies of the Swiss tax document for 2013 2014 to substantiate that the allowance received outside India from the employer had suffered tax in the country where the services were rendered. Vide letter dated 05.12.2016 [Pages 52 to 53 of paper book], the AR of the assessee filed copies of his bank stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of IBMfrom the Nostro Account maintained outside India. The modality of payment as confirmed by Axis Bank Ltd for SudiptaMaity is same for the captioned assessee . 10. From the foregoing discussion it is abundantly clear that prior to completion of the assessment u/s 143(3)of the Act, the AO had required the assessee to furnish his explanations with regard to his claim for exclusion of foreign assignment allowance from the ambit of his taxable total income in India. In response the ld. AR of the assessee had furnished before the AO the relevant documentary evidences and also substantiated his explanations in support of his contentions by placing reliance on the relevant applicable legal provisions of the Act. The ld. AR of the assessee had also furnished before the AO requisite documentary evidences which proved the foreign assignment allowance which was excluded from the ambit of total income taxable in India, had suffered applicable tax in Switzerland being the country where the services were actually rendered. Having considered these evidences, explanations and applicable legal provisions, the AO recorded the specific finding that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Floor, on 04.02.2008 at 11.30 AM. . The annexure to the notice under Section 142(1) of the Act reads as follows:-- 'Requisition u/s 142(1) of the IT Act '61. M/s. J. L. Morison (India) Ltd. - AY 06-07. (1) A write-up on receipt of ₹ 18 crore from foreign co. (2) 77. Mr. Poddar also drew our attention to the reply dated 19th March 2008 given by the assessee to the notice, dated 21st January 2008, under Section 142(1) of the Act. He contended that all the requisite particulars were furnished together with documents. Thereafter, the matter was heard from time to time by the assessing officer as would appear from the List of Dates submitted by Mr. Nizamuddin, learned advocate for the appellant. From the list of dates it appears that on 21st January, 2008 notice under Section 142(1) was issued. On 4th February, 2008 the Assessee appeared and filed details and particulars. On 18th February, 2008, 4th March, 2008, 19th March, 2008 and 26th March, 2008 the matter was heard. The Assessing Officer has recorded in the order sheet that the case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the Revenue nor can it be said to be erroneous simply because in his order the A.O. did not make any elaborate discussions in that regard. 80. Mr. Poddar contended that neither before the Tribunal nor in the present appeal has any question has been suggested that the assessment order was bad because the same did not disclose any reasons. The contention raised and the judgments cited by Mr. Nizamuddin, as regards exercise of power u/s. 263 of the Act, are misconceived, and also out of the context. 81. Mr. Poddar contended that the finding of the learned Tribunal that the order dated 28th March, 2008 was not passed without application of mind has not been challenged before this Court. No attempt far less any serious attempt was made on behalf of the revenue to demonstrate that the order passed on 28th March, 2008 by the Assessing Officer was wrong either on facts or law. The appellant has also not been able, nor in fact has made any attempt to establish that the finding of the learned Tribunal that the order dated 28th March, 2008 was not passed without the application of mind is based otherwise than on evidence. On the contrary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ryana High Court in the case of Hari Iron Trading Co. v. CIT [2003] 263 ITR 437/131 Taxman 535, wherein the following views were expressed:-- The expression record has also been defined in clause (b) of the Explanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, the issues which are accepted do not find mention in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee prejudiced. He was as such under no obligation in law to give reasons. 89. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact the order was passed by the assessing officer after due application of mind. 90. The judgments cited by Mr. Nizamuddin do not really support his contention. The judgment in the case of Meerut Roller Flour Mills (P.) Ltd. (supra) does not apply because the High court in that case was satisfied that the assessment order was passed without enquiry. 91. The judgment of Cochin Bench of Income Tax Appellate Tribunal in ITA No. 116 /Coch/ 2012 relied upon by Mr. Nizamuddin is evidently based on an erroneous impression that the proceedings before the Assessing Officer are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer is not required to write an elaborate judgment. He contended that the assessing officer may not have any such obligation but it cannot be said, according to him, that the Assessing Officer is under no obligation to record anything in his assessment order. It is not in the first place a fact that he has not recorded anything. From the assessment order, the following facts and circumstances appear:-- Return was filed on 29/11/06 showing total income of ₹ 3,80,66,940/-. In response to notices u/s. 143(2) and 142(1) of the I. T. Act, 1961, Sri P. R. Kothari, A/r appeared from time to time and explained the return. Necessary details and particulars were filed. The business of the assessee is manufacturing and trading of cosmetics and dental care products as in earlier years. In view of above total income is computed is under: 98. Unless the aforesaid recital is factually incorrect or the computation is legally wrong, it is not possible to hold that the assessment order was passed without application of mind. On the top of that when the Assessing Officer accepted the contention of the assessee there was no occasion f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable in India. On these facts, we are therefore of the firm view that not only did the AO enquire into the issue of taxability of foreign assignment allowance but had consciously applied his mind to the facts made available before him and adopted the view permissible in law. For these reasons, we are of the considered view that the assessment order did not suffer from the error of non-enquiry or non-application of mind or assumption of wrong facts. 14. In the impugned order the ld. CIT placed emphasis on the fact that the allowance in question was received by the assessee from an entity established in India. He further emphasized on the fact that the assessee s employment contract was with Indian company and the contract of the employment which gave rise to the payment in question was executed in India. Accordingly the assessee s right to receive remuneration inter alia including foreign assignment allowance had accrued in India and consequently therefore the assessee was liable to pay tax on such allowance in India. The ld. CIT further observed that the allowance in question was computed in INR denomination which clearly showed that the payment was intended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrate that the income chargeable under the salary accrued or deemed to accrue in India, as defined in Section 9(1)(ii) of the Act, which read as follows: 9. (1) The following incomes shall be deemed to accrue or arise in India :- (ii) income which falls under the head Salaries , if it is earned in India. Explanation.-For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India 16. From the foregoing provision it is quite evident that the income under the head Salaries is deemed to be earned in India only if such income is paid for services rendered in India. In other words, rendering of services to the employer in India is sine qua non for invoking deeming provisions of Section 9(1)(ii) of the Act. In the present case it is not denied by the ld. CIT that for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Card (TCC) to an employee who is sent to a foreign assignment. b) IBM maintains an Exchange Earners Foreign Currency (EEFC) Account with Deutsche Bank, Bangalore. c) From the EEFC Account of Deutsche Bank, funds are transferred to the Nostro Account of Axis Bank maintained outside India. d) Upon instruction from IBM, the funds are then transferred from the Nostro Account of Axis Bank maintained outside India to the Axis TCC of the respective employee. 19. From the foregoing, it is evident that the funds were transferred outside India to the foreign currency denominated account of the employer at the express direction of the employer and even the payment towards TCC was made on the instructions of the employer. We therefore do not find any merit in the ld. CIT s finding that the impugned allowance was first received by the assessee in India and thereafter at his instance the amounts were remitted outside India in the form of TCC. 20. Another issue which weighed on the ld. CIT s mind was that the impugned allowance did not suffer any tax in the country of residence i.e. Switzerland and therefore it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elp to the assessee because the Hon ble High Court had reversed the decision of the Tribunal keeping in view the concession granted by the Board to the specific class of assessee s being sea-farers. Since the assessee in the present case was not a seafarer , it was the ld. CIT s stand that the benefit of the CBDT Circular No.13 of 2017 as well as the judgment of the Hon ble Calcutta High Court was of no help to the assessee. After due consideration of the facts and material on record, we are unable to agree with the ld. CIT s such contention. In the first instance we find that the facts of the case are materially different from the facts involved in the case of Tapas Kumar Bandyopadhyay (supra). In that case the assessee a marine engineer was rendering his services in international waters and his salary from the employer was admittedly deposited in his bank account maintained in India. Further such salary did not suffer any tax in any other country. On these facts, the Tribunal held that the income was chargeable to tax in India since the salary was deposited in bank account maintained in India. In the present case however, as noted in the preceding paragraphs, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee filed his return of income for the Asst Year 2013-14 declaring taxable income of ₹ 5,73,320/- (being the salary received in India alone) after claiming deduction of ₹ 1,01,405/- under Chapter VIA of the Act and claimed a refund of ₹ 15,58,060/- in his return of income. 4.1. During the financial year 2012-13, the assessee had received ₹ 51,84,489/- outside India for services rendered outside India . The assessee pleaded that the entire foreign allowance of ₹ 51,84,489/- was not offered to tax in India as the same was received by the assessee outside India for the services rendered outside India which does not form part of the total income u/s 5(2) of the Act. The assessee however offered the entire salary received in India of ₹ 6,77,128/- to tax in India. In the course of assessment proceedings, the assessee submitted a letter dated 24.9.2015 with regard to exemption claimed by him towards foreign assignment allowance, which was paid by crediting the assessee s Travel Currency Card (TCC) . The assessee also furnished a certificate from IBM India Private Limited stating that the assessee had received ₹ 51,84, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue, we find that:- a) The assessee is a non-resident individual and had rendered services outside India for which he has received foreign assignment allowance. b) IBM maintains money in foreign currency in its EEFC account maintained with Deutsche Bank, Bangalore. c) IBM instructs Axis Bank to issue Travel Currency Card to its employees who are sent on foreign assignment, which is loosely called Axis TCC. d) Axis Bank has maintained a Nostro Account with its Correspondent Banker (ZuercherKantonal Bank, Zurich). e) IBM transfers funds from its EEFC Account from Deutsche Bank to the Nostro Account of Axis Bank (i.eZuercherKantonal Bank) for the purpose of loading / reloading the Axis TCC issued to the assessee who is sent on foreign assignment. f) The employee who is sent on foreign assignment uses the said funds outside India out of monies topped up or credited in his Axis TCC. Hence it could be safely concluded that the first point of receipt for the assessee happens outside India. This money is used by him for his sustenance in Switzerland. Both the accrual and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. 7.4. We find that the reliance placed by the ld AR on the Co-ordinate Bench decision of Jaipur Tribunal in the case of ADIT (International Taxation) vs Sri Kartik Vyas in ITA No. 375/JP/2012 dated 31.12.2014 is directly on this point which was rendered in the context of an IBM employee under similar circumstances. It was held as under:- 5. At the outset, the learned AR for the assessee reiterated the submissions made before the ld. CIT(A) and submitted that the appellant is an employee of IBM India Pvt. Ltd., was sent on an International assignment to Netherlands during the previous year 2007-08. The appellant received foreign allowances of ₹ 17,27,360/- outside India for the services rendered in Netherlands. As the appellant, qualified as a non-resident during the relevant assessment year and foreign allowances received by the appellant is not liable to tax U/s 5(2) of the Act. The appellant had disclosed total income of ₹ 3,27,910/- excluding the foreign allowances and against this income, the tax of ₹ 48,790/- was paid by the appellant. The employer deducted TDS wrongly at ₹ 6,36,484.65 and appellant also paid se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Rao reported in 198 Taxman 551 (Kar) and Hon ble Bombay High Court in the case of CIT vs Avtar Singh Wadhwan reported in 247 ITR 260 (Bom) had held that in the case of a non-resident, when services are rendered outside India , the accrual of income thereon happens outside India and hence the same cannot be brought to tax in India as per section 5(2) of the Act. As stated above, we find that the assessee was able to get control over the funds in his TCC for the first time only in Switzerland and not in India and first point of receipt also happens only in Switzerland. Hence it could be safely concluded that both accrual and receipt of funds happens outside India thereby making the said receipt to stay outside the ambit of taxability u/s 5(2) of the Act. 7.7. We also find that identical claim of exemption of the assessee was allowed by the ld AO for the Asst Year 2014-15 u/s 143(3) of the Act dated 10.12.2016 after detailed examination of the same and by giving proper findings in the assessment order vide para 5.02 and 5.03. 7.8. In view of the aforesaid findings in the facts and circumstances of the case and by respectfully following the vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation 1.]-For the removal of doubts, it is hereby declared that, for the purposes of this subsection,- (a) an order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A; (ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. 26. A reading of Section 263 of the Act and the Explanations as well as the amendments brought in by the Finance Act, 2015, w.e.f. 01.06. 2015, by inserting Explanation 2, we note that Explanation -2, is a deeming provision and the well settled position of law is that while construing a deeming provision, it has to be strictly interpreted and that the legal fictions should not be stretched beyond the purpose for which they were enacted and should not extend that legitimate field (Raymond Vs. State of Chattisgarh AIR 20-07 SC 2854) and it should be kept in mind that deeming provision should be in respect of facts, from which legal consequences will follow. However, a legal consequence cannot be deemed[DCM Vs. State of Rajasthan (1996) 2 SCC 449. AIR 1996 SC 2930 (3 judges of Hon ble Supreme Court) and same view reiterated in State of Karnataka Vs. State of Tamil Nadu (2017) 3 SCC 362. So when we look at Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion bereft of facts or law by the Ld CIT. It must be the considered opinion of the CIT which is based on the correct facts and in accordance to well established principles of law. The aforesaid clause only provides for situation where inquiries or verifications should be made by reasonable and prudent officer in the context of the case. Such clause cannot be read to authorize or give unfettered powers to the Commissioner to revise each and every assessment order. The applicability of the clause is thus essentially contextual. It has to be the opinion of a prudent person instructed in law. The Hon ble Supreme Court in Maneka Gandhi Vs. Union of India reported in 1978 AIR (SC) 597 has laid down the law that a public authority should discharge his duties in a fair, just and reasonable, manner and the principle of due process of law was recognized by the Hon ble Supreme Court. Therefore the opinion of the Ld. CIT has to be in consonance with that of the well settled judicial principles and cannot be arbitrarily made discarding the judicial precedent on the subject. The opinion of the Ld. Pr. CIT has to be reasonable and that of a prudent person instructed in law. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which proved the foreign assignment allowance which was excluded from the ambit of total income taxable in India, had suffered applicable tax in Switzerland being the country where the services were actually rendered. Having considered these evidences, explanations and applicable legal provisions, the AO recorded the specific finding that the assessee was in India only for 16 days and the rest of the period he was in assignment to Switzerland and had received foreign assignment allowance . In such a scenario, the finding recorded by the AO, cannot be termed as a case of no-enquiry at all in respect of foreign assignment allowance of the assessee. Therefore, the ld. CIT s view that the action of the AO in allowing the amount of ₹ 42,97,092/- as exempt from taxation is in violation of the provision of sec. 5(2) of the Act without any enquiry, is factually incorrect. We note that this issue was considered by the AO and after enquiry he has taken a view to allow the claim of the assessee that this foreign assignment allowance is not taxable in India. We therefore hold that the AO s view cannot be held to be erroneous for want of enquiry. 30. We further find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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