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TMI Blog2024 (12) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the proceeding u/s 263 of Act is bad in law without appreciating the binding principle laid down by the Hon'ble Supreme Court in the case of Vodafone International Holding BV (1 SCR573) (2012) stating that a holistic approach should be taken instead of a transactional approach while deciding the tax liability of a non-resident? C) Whether the Ld. ITAT is correct in facts and in the circumstances of the case by quashing the proceeding u/s 263 of the Act being not erroneous and prejudicial to the interest of the revenue even though the facts indicate that the assessee has adopted a tax avoidance scheme for evasion of legitimate taxes in India? D) Whether the Ld. ITAT is correct in ignoring the legal position that an order passed without making inquiries or verification shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue in view of clause (a) of Explanation of 2 to section 263 of the I.T. Act? E) Whether the Ld. ITAT has erred in quashing the proceeding u/s 263 of the Act on the ground of "change in opinion" without appreciating the facts that in the absence of adequate enquires and gathering of relevant evidence including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: - "3. The AO has accepted the returned income declared by the assessee without conducting basic enquiries like asking for the upstream/downstream structure of the Genpact group and without ascertaining the source of the money used to carry out the said transactions. Since the shares transfer transactions were between two group entities even the purpose for carrying out such transactions with huge flow of funds between group entities located within different territorial jurisdictions was not enquired into. These transactions were carried out between the group entities as part of grand lax avoidance Scheme designed by the Genpact group however the AO did not make any enquiries to find out the true nature of the transactions. The CASS reasons for which case was selected through CASS system was with the reasons „Large International Transactions'. AO did not make any enquiry to find out the real character and real purpose of this transaction where huge amount was remitted out of India under the garb of share transfers between two group entities. The AO also did not ask for Share Purchase Agreement to verify the claims of the assessee. Though the assessee provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng transactions to come to a conclusion. " Notwithstanding the above fact, even if the assessee chooses to see this order as denying the benefits available under the DTAA and the Act, the undersigned would like to quote from the judgement of Vodafone International Holdings B.V. v. Union of India where the Hon'ble Supreme Court has noted as under: "In the application of a judicial anti-avoidance rule the Revenue may invoke the "Substance over form" principle or "piercing the corporate veil" lest only after it is able to establish on the basis of the facts and circumstances surrounding the transaction that the impugned transaction is a sham or tax avoidant. To give an example, if a structure is used for circular trading or round tripping or to pay bribes then such transactions, though having a legal form, should be discarded by applying the test of fiscal nullity. Similarly, in a case where the Revenue finds that in a Holding Structurean entity which has no commercial/business substance has been interposed only to avoid tax then in such cases applying the test of fiscal nullity it would be open to the Revenue to discard such inter-positioning of that entity." Thus, as has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the part of AO and not just „inadequate enquiry'. As discussed above the AO did not make any enquiry for revealing the true character and real purpose of the transaction and accepted the claim of the assessee which is erroneous and prejudicial to the interest of revenue. Moreover by raising these baseless objections, the assessee is stymieing the law to take its course, so that justice can prevail." 6. However, of significance are the following conclusions which appear in that order: - "It is noticeable from the above that Headstrong Consulting Singapore Pte Ltd was holding 94.7% shareholding of Genpact India and 5.3% of the shareholding was with another group entity Genpact India Holding Mauritius before the execution of tax avoidance scheme. After the execution of tax avoidance scheme on 25.03.2015. Headstrong Consulting Singapore Pte Ltd. is holding 100% shares of the Genpact India amalgamated entity now known as Genpact India Pvt. Ltd. 100% Shareholding of Genpact India before and after the share transfer transaction is with the Genpact Group Entities only. However, these sham transaction have created an artificial liability in the balance sheet of Genpact India Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Dividend Distribution Tax [DDT] under Section 115-O of the Act. On the basis of the aforenoted significant conclusions, the Commissioner came to form the opinion that the view rendered by the AO would merit correction under Section 263. 8. This led to the respondent-assessee approaching the Tribunal. The Tribunal has, while dealing with the appeal preferred by the respondent-assessee, essentially come to hold that in the absence of the Commissioner having come to conclude that the AO had failed to undertake the requisite inquiry as contemplated, there was no justification for the assessment order being revised. It has ultimately taken note of the precedents rendered on the scope of the power which stands placed in the hands of the Commissioner by virtue of Section 263 and has come to the firm conclusion that the Order-in-Revision was clearly unsustainable. It has, while dealing with these aspects observed as follows: - "26. The Hon'ble Bombay High Court in the case of Gabriel India Ltd 203 ITR 108 has held as under: "The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was not justified in setting aside the assessment order. 27. It is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the decision of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 Taxmann.com 272 (Bombay)." 9. Quite apart from the view which the Tribunal has come to express, we find that the order of the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2022 and the final order passed by the respondents disposing of the objections of the petitioner on 29 March 2022. 11. The ineffaceable connect which must exist between the reasons initially disclosed proposing reassessment and which constitute the basis for formation of opinion with respect to escapement of income and the final decision to commence reassessment, was an aspect which was duly highlighted by us in our judgment in ATS Infrastructure Limited v. Assistant Commissioner of Income Tax Circle 1(1). We had in that decision observed as follows:- xxxx xxxx xxxx 12. Quite apart from the above, the impugned proceedings are liable to be quashed on a more fundamental ground. Undisputedly, the petitioner had offered the interest income to tax in terms of the provisions contained in Section 194LD of the Act. The ultimate order under Section 148A (d), however, alleges that the remittance in fact, constituted dividend and which was liable to be taxed in terms of Section 115-O of the Act. 13. Section 115-O, insofar as it is relevant for our purposes, is extracted hereinbelow:- xxxx xxxx xxxx 14. As is plainly evident from a reading of that provision, DDT is liable to be pai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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