JOURNAL JUNE 23

Ahmedabad Chartered Accountant Journal June, 2023 125 Volume : 47 Part : 03 June, 2023 E-mail : [email protected] Website : www.caa-ahm.org Ahmedabad Chartered Accountant Journal In this Issue Contents Author's Name Page No. - caaahmedabad Journal Committee Shah Rajni Mangaldas Kataria Ashok Chhugamal Shah Karan Dhirenbhai Sheth Prakash Bharatkumar Chairman Convener E. C. Representative Past President Members Shah Rutvij Pankajkumar Desai Maulik Sharadbhai Choksi Nirav Rameshbhai Shah Jignesh Jaswantlal Shah Rushabh Mayank - Wealth, Power & Youth CA. Nirav R. Choksi 127 Editorial CA. Rajni M. Shah 128 From the President CA. Shivang Chokshi 129 Articles Faceless Assessment - Double Edged Sword ? CA. Riya Khokhani 130 Amendment brough in by Finance Act, 2023 on taxability of Royalty and Fees CA. Malay Kalavadia 134 for Technical Service (FTS) under Section 115A of the Act - A big turnaround CA. Darshit Shah Job Work - Some Issues CA. Rikin Parikh 137 Direct Taxes Glimpses of Supreme Court Rulings Adv. Samir N. Divatia 141 From the Courts CA. Jayesh Sharedalal 142 Tribunal News CA. Yogesh G. Shah & 149 CA. Aparna Parelkar Unreported Judgements CA. Sanjay R. Shah 155 Judicial Analysis Advocate Tushar Hemani 159 FEMA & International Taxation Fiscally Transparent Entities (FTEs) and treaty eligibility – CA. Dhinal A. Shah & 167 An Unsolved Enigma CA. Hardik Khatri FEMA Updates CA. Dr. Savan R. Godiawala 169 Indirect Taxes GST and VAT Judgments and Updates CA. Bihari B. Shah & 170 CA. Vishrut R. Shah Advance Ruling under GST CA. Monish S. Shah 173 Corporate Law & Others Corporate Law Update CA. Naveen Mandovara 179 GujRERA Corner CA. Manan Doshi 181 Capital Markets CA. Karan P. Vora 183 From Published Accounts CA. Pamil H. Shah 187 From the Government CA. Ashwin H. Shah & 189 CA. Kunal A. Shah IT Corner CA. Rushabh Shah 191 Association News CA. Mayur H. Modha & 193 CA. Prakash B. Nandola ACAJ Crossword Contest 196

126 Ahmedabad Chartered Accountant Journal June, 2023 Attention Members / Subscribers / Authors / Contributors 1. Journals are carefully posted. If not received, you are requested to write to the Association's Office within one month. A copy of the Journal would be sent, if extra copies are available. 2. You are requested to intimate change of address to the Association's Office. 3. Subscription for the financial year 2023-24 is ` 1500/-, single copy ` 150/- (if available). 4. Please mention your membership number in all your correspondence. 5. While sending Articles for this Journal, please confirm that the same are not published / not even meant for publishing elsewhere. No correspondence will be made in respect of Articles not accepted for publication, nor will they be sent back. 6. The opinions, views, statements, results published in this Journal are of the respective authors / contributors and Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does it necessarily concur with the authors / contributors. 7. Life Membership/Annual Membership and Other Fees F. Y. 2023-24 Amount in ` Basic GST Total 1. Admission Fees 500 90 590 2. Annual Membership Fees a. If Paid Prior to june 30 of each financial year : i. In case of membership (of ICAI) for a period of less than or equal to five years 600 - 600 ii. In case of membership of (ICAI) for a period more than five years, 750 - 750 b. If paid after june 30 of each financial year : i. In case of membership (of ICAI) for a period of less than or equal to five years, 720 - 720 ii. In case of membership of (ICAI) for a period of more than five years 900 - 900 3. Life Membership Fees i. In case of membership (of ICAI) for a period of less than or equal to five years 4000 720 4720 ii. In case of membership of (ICAI) for a period more than five years 7500 1350 8850 4. Brain Trust Membership Fees a. Individual Membership Fees i. In case of membership (of ICAI) for a period of less than or equal to five years 800 144 944 ii. In case of membership of (ICAI) for a period more than five years 1200 216 1416 b. Flexi Firm/Corporate Membership Fees*** 2400 432 2832 *** Registered Firm/Corporate can nominate any two participants from their firm for each Brain Trust Meeting. Additional Representatives can be nominated @1200/- plus GST per participant subject to maximum of 20 participant per firm Published By CA. Rajni M. Shah, on behalf of Chartered Accountants Association, Ahmedabad, 2nd Floor, Darshak, 14/A, Swastik Society, Opp. Shrey Hospital, Navrangpura, Ahmedabad - 380 009 Phone : +91 79 40392596 While every effort has been made to ensure accuracy of information contained in this Journal, the Publisher is not responsible for any error that may have arisen. Professional Awards The best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and 'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted by experts in the profession. Articles and reading literatures are invited from members as well as from other professional colleagues. Printed : Pratiksha Printer, Ahmedabad Mobile : 98252 62512 E-mail : [email protected]

Ahmedabad Chartered Accountant Journal June, 2023 127 “Take no pride in your possession, in the people (at your command), in the youthfulness (that you have). Time loots away all these in a moment” The above sentence is thought provoking, it is in knowledge of all living beings, it is easily understandable but a sentence which is seldomly practiced. Can we as a human being raise ourselves above our worldly possessions, our powerful positions and our youthfulness? A pertinent question in this materialistic world where temporary possessions give us permanent sense of being powerful and mighty. Possessions – These are materialistic possessions which either we have earned or we have inherited. Some use it carelessly, some use it cautiously, some fail to use it during their life time but practically speaking all feel a fake sense of pride in owning them. When we introspect into these possessions we will surely agree that they only have a utility value. Still knowingly or unknowingly we consider them to be of the most important aspects of our lives. Power – A TEMPORARY post which may last from a few days, few months to few years gives us a sense of absolute ownership over the people who are our subordinates or who are at our command. I call it temporary because it will end one day but unfortunately the sense of being powerful which it instils in our minds lasts for a very very long time. In our quest of feeling powerful we often end up being neglective of the very people who are with us not because of our position but who are connected heart to heart with us. The CA. Nirav R. Choksi [email protected] Wealth, Power & Youth moment the tenure gets over, the people who we commanded do not have the same respect for us and the people whom we want to connect back have gone too far away from us. Youth – Even if a person may not have any materialistic possessions or may not enjoy any powerful position, he will surely in his life have a stage when he is young. A young person is strong and powerful at that stage and this gives him a false belief that this will continue for a long while. It could be beauty or strength in stand alone basis or in comparison with those who are around him which may give him a false sense of accomplishment. As the ageing process starts, things will take a turn and this happens very suddenly. All in all, whether it be any Possessions, Any Power or Youth, all will end someday. On that day we must not have feeling of dejection that we have should not have lost it. Plainly speaking, they will come to an end, its only that we are not ready for the end or we are not ready to accept the end. The day we accept this fact of our lives, we will attain complete calmness of mind and body which will lead to a happy life from that moment itself. A Life which will be full of accomplishments but not an inkling of false sense of being Powerful. ❉ ❉ ❉

128 Ahmedabad Chartered Accountant Journal June, 2023 The Institute of Chartered Accountants of India has recently come out with the new scheme of training which was launched on the occasion of 75th Foundation Day of Institute of Chartered Accountants of India on 01st July, 2023 by our Hon’ble President, Smt. Droupadi Murmu. The much talked about new study course might include new generation topics like Artificial Intelligence, Blockchain and others. It is a certain fact that quality education system will play a major role in helping skilled CAs to join the workforce. It already was a high time for the apex Institute to come out with a new syllabus which could match the global standards and modern learning approach which are responsive and relevant. In the recent past, though there have been changes in the nomenclature of the courses like Foundation to CPT and Intermediate to IPCC, there was no major revamp in the substance concerned. With the present system not quite matching with the current period, it was the need of the hour to include problem-solving and decision making approach in the new syllabus which can mould the students to be able to join the workforce. Students used to simply mug up the courses and undeniably our education system becomes mere spoon feeding. However, we must understand that an intelligent student is the one who is able to handle something that he has not faced in his life rather than the one who scores 90/100 after memorizing the same course thrice. Therefore, while the students were masters in finance, they were not efficient in communication skills and exchange of ideas as compared to their counterparts like MBAs who had more substance rather than form. While the new course is being implemented, it is suggested that even the Chartered Accountancy course should have the concept of Major / Minor as we have seen in various other disciplines which allow the students to prepare for the subject interest in greater detail and therefore ensuring that the finished products are suitable to compete in the real world in their field of interest. Care should also be taken that the students develop a more practical approach rather than remaining just book worms with effective articleship exposure. Also, the Institute which is headed by a young, dynamic and energetic President at present should take appropriate steps to help the students enhance their soft skills by upgrading the present training so that the gap between a CA and other professionals which is always felt across the board is filled up. It is also up to the students to go beyond the quest for degrees and rather be interested in the training that they are receiving. It has always been the experience that students who undergo rigorous practical training achieve far better success in practical life compared to others. It is time, students are taught as how to handle work pressure and also the people around to be able to be a successful entrepreneur. This is where we feel the educational system is not evolving at the pace it should and that we realize that there is a difference between the classroom and the real world. It is not a fact that the students are not talented but there needs to be a method to harness their talent in the right manner and therefore unless taken in the correct spirit, the day is not far away where the system converts a talent to a student. Let’s only hope that the new system helps to generate better talent who can indeed fulfill one place the Institute’s motto of being awake in those who sleep. ❉ ❉ ❉ CA. Rajni M. Shah Editorial [email protected]

Ahmedabad Chartered Accountant Journal June, 2023 129 Respected Members, I am writing you this message as we completed a memorable 53rd Residential Refresher Course at the holy place of Nathdwara, Rajasthan. I applaud the committee chairman CA Atul Shah and Convenor CA Nirav Choksi and all the committee members for their contribution in making the event special. I was overwhelmed to see the active participations in the group discussions and the papers. My deepest gratitude to the faculties CA Manthan Khokhani, Advocate Mehul Patel and CA Vishal Doshi (CCM, ICAI). A panel discussion on ‘What is next for SME CA’ by stalwarts like CA Jayesh Sharedalal, CA Mukesh Khandwala and CA Khshitij Patel gave their insights on how they scaled their firms to new heights. Their time and information given to the discussion is greatly appreciated by our whole team. It opened up a great avenue of thought process for all of us present there. To conclude, the RRC was a great success and it touched upon all the facets including networking and bonding which we all intended. The month of June was filled with representations as we met several departments of Income tax and exchanged ideas in order to have more meaningful information to be provided to members. Ready formats for matters related to delay condone in exemption cases and our representation in case of E-verification was well appreciated. We plan to provide with even more unique seminars and brain storming sessions. The Indirect tax study group will be meeting every alternate Friday to discuss on various issues and updates on GST. I am confident that it will help the members in enhancing their skills. As we prepare for the ITR and Audit season is ON, we will touch upon the issues relating to them in the coming weeks. It gives me great pleasure to announce that we have started the process of building a website dedicated to the Ahmedabad Chartered Accountant Journal. All the rich contents of the ACAJ will be available to the members online and one will be able to search the unique articles through key words, sections and authors. This will be a big step in digitisation of the knowledge we share via our monthly journal which holds an esteemed place in our community. Thank you for your ongoing support and dedication to the Chartered Accountant Association. I look forward for more participation from one and all and your suggestions to make us better, are always welcome. Together, we will navigate the challenges and seize the opportunities that lie ahead, making a meaningful impact on our profession and society. ❉ ❉ ❉ From the President From the President From the President CA. Shivang Chokshi [email protected]

130 Ahmedabad Chartered Accountant Journal June, 2023 In today’s era, Justice is not only blind but also faceless. On a lighter note, I really hope and pray that now it does not turn headless. Indian Government has undoubtedly taken a bold step by moving towards a faceless assessment and it is very well evident that tax administration in India is in the midst of its golden era of digitization. Now that faceless assessment is already implemented, one question arises as to whether the decision of implementing the same was befitting when the Indian Judiciary System is already mounted and thrust with the heaps and piles of never ending workload. Well, only time will tell. With the intent of “Minimum Government and Maximum Governance”, the Indian Government has brought about a paradigm shift in building the future with technology by establishing an ecosystem of assessments and appeals based om artificial intelligence and data analytics. Necessary provisions have been incorporated under section 144B of the Income Tax Act, 1961 which lays the procedure for assessment of a return of income in the new faceless regime. The faceless assessment scheme is based on the key principles of Efficiency, Transparency and Accountability. The particular scheme has come a long way since its implementation for almost about three years now. The CBDT has time and again issued various SOPs and guidelines for the seamless functioning of the scheme and making the overall experience painless for the taxpayers and professionals. In nutshell, faceless assessment can be perceived as a well lay out plan with all good intentions and modern systems but howsoever noble every change comes with few inherent challenges and shortcomings. But the question here is whether the strengths outweigh the flaws? Vide this article, I have expressed my opinion majorly about the challenges of faceless assessment without abandoning its advantages. Faceless Assessment - Double Edged Sword ? CA. Riya Khokhani [email protected] 1. Firstly, speaking about the apparent advantagesa. The taxpayers and professionals now need not rush and wait in queues outside the department offices for furnishing their submissions and can now file their submissions from the comfort of their homes and offices. This has made the assessment process hassle-free and time saving to a much greater extent. b. Needless to say that paper and corruption to a greater extent are out of the system with the introduction of the said scheme which is a reason to applaud the current reigning government. c. Faceless assessment scheme is all about team based assessment with dynamic jurisdiction. It has resulted in functional specialization for specific parts of assessments by different specialized units. Now there are different units performing specific functions allocated to them. The job of Assessment Unit is to prepare draft assessment order which is then reviewed by Review Unit before issuing it to the assessee (maker checker concept). The job of Verification Unit is to conduct enquiry and examine details/books of accounts etc. It is the only unit which has interaction with the assesse. The job of Technical Unit is to provide technical assistance and expert opinion in the matters pertaining to legal issues, accounting, transfer pricing etc. Earlier the entire job was carried out by a single officer wherein the assessment was carried out according to whims and fancies of only a single officer which has been completely eliminated with team based assessment.This

Ahmedabad Chartered Accountant Journal June, 2023 131 has also led to optimum utilization of resources through economies of scale and functional specialization. It has also enhanced tax compliance through uniformity in application of law. However, I feel the positives of the faceless assessment scheme have been somehow overshadowed by its negatives since the beginning of its implementation. 2. Coming to the issues pertaining to communication of noticesa. The notices are being sent on the registered email ID of the taxpayers and also are uploaded on the Income Tax portal. One must always keep a constant tab on his/her email including SPAM folder or timely keep checking the Income Tax portal in order to receive notices. Technological adaptation has become a challenge especially for the senior citizens andalso for senior and veteran tax professionals as majority of the them are still not adaptive to routine email communications. b. Secondly the notices are being sent on the email IDs which are registered for the respective assessment year and the email ID mentioned in the ITR,which may differ with the email IDs registered at the time commencement of scrutiny proceedings. If the email ID to which the notices are being sent belong to an old C.A. or consultant and if he/she fails to forward the notices to the assesse, there is a high probability of an exparte assessment. This is one of the practical problems being faced by many assesses. One just cannot afford to miss any communication or notice from the Income Tax Department as missing it may result into exparte assessment which would lead to frivolous demand of tax. c. One of the major drawback of faceless assessment is that there has been a substantial increase in the ex-parte assessments after the implementation of the Faceless Assessment - Double Edged Sword ? faceless scheme than ever before which has put the tax payers into a greater hardship mentally and financially. The limited time window provided for furnishing response to the notices is majorly responsible for increase in ex-parte assessment as the system disables the response after the set due date. The officers have a lot of time after issuing notices u/s. 143(2) of the Act but in majority of the cases scrutiny assessments are initiatedonly around one or two months before the limitation date. It has been evident more often than not that in many cases the time limit provided for furnishing response to the notice does not commensurate with the quantum of details being asked in the notice. Also, the time window provided does not exclude public holidays and Sundays. At many instances, it has been noticed especially in the matter of issue of Show Cause Notices that they are issued at the fag end of the working hours of Saturdayand are expected to reply on Monday. The plea of adjournment in such cases is also rejected many times as the matter is already time barring. This has led to prolonged working hours and sleepless nights for tax professionals which could have been conveniently avoided if the Department manages to dispose off the cases in a timely manner and does not wait till the deadline. d. Possible solutions to overcome the above mentioned challenges (i) From the IT Department’s end – - The notices should also be issued on the email IDs which are registered on the portal at the time of carrying out assessment proceedings. - The Department should issue second Show Cause Notice or should devise a mechanism for physical delivery of the notices to the assesses especially

132 Ahmedabad Chartered Accountant Journal June, 2023 when the stake involved is huge. But this will only work if the Department wakes up early before the deadline in case of time barring matters. (ii) From the Taxpayer’s end · One of the workable – tried and tested solution for the assesse is that the he/ she can also reach out on samadhan.faceless.assessment @incometax.gov.in which is a grievance mechanism enacted for faceless assessment. Please note that this solution can work only before the passing of assessment order. 3. Moving on to the submissionspartWritten submission is the only way of communication between the assesse and tax officer and hence the importance of effective drafting and language has significantly increased with the introduction of faceless regime. It is extremely crucial to prepare a crisp submission as that shall determine the fate of the assessment. It is a very pitiable scenario where clients suffer because of poor drafting even though the facts and merits of the case are strong enough. There will be almost negligible personal interaction and therefore the assesse/tax professionals will not be able to enjoy the privilege to explain the case physically and traditionally. It is indeed an art to bring an alignmentbetween your dialogue and other person’s understanding.It has been quite a task for the professionals to learn the art of drafting and explaining the facts effectively on a piece of paper. This has resulted in an opportunity for some tax professionals and at the same time loss of revenue for some who somehow have not been able keep up with this art, as they would be forced to hand over such cases to the experts. 4. Coming to the effectiveness of the communication from the end of NFACI feel that in most of the casesthe communication from the end of the Department has become a mere formality and mechanical in nature. It has failed miserably when viewed in parameters of effective communication. The effectiveness and gravity of the communication is the key which decides the outcome of a dialogue. The communication from the side of the Department has been perceived to be pro-revenue and hence lacks value. In many cases, it seems that that assessment is being carried out unilaterally by the Department without considering the submissions of the assesse with the only intention of making quantum additions. It has now become very convenient for the assessment unit to pass non speaking orders simply by writing that the explanations of the assesses are not acceptable.It has been also seen that the purpose of section 148A is highly vitiated. Section 148A had been introduced to provide a fair opportunity to the taxpayers to submit objections against the proposal of re-opening of the case. However, the same are being disposed off by the Department by recklessly denying the facts beyond any reasonable doubts. Earlier the option to provide personal hearing through Video Conferencing was at the discretion of the verification unit. But now it has become mandatory to provide the same. But in many cases, it has been observed that the experience is not very conducive as it is more of a monologue and one feels as if talking to a wall or a piece of object as no counter response/arguments or clarifications are demanded from the other side rendering the entire process just a formality to place it on record. The opportunity to present the case is material but the extent to which it is received, processed and responded probably does not fit within the framework of Principles of Natural Justice. In nutshell, faceless assessments in many cases have been proved to be demand creating and tax gathering procedures, thereby compromising the reasonableness and the spirit of the scheme. Faceless Assessment - Double Edged Sword ?

Ahmedabad Chartered Accountant Journal June, 2023 133 5. Majority of the faceless assessments having been turned into high-pitched assessment which is one of the most agonizing scenario and blatantly killing the intention of the scheme. The assessments are being finalized in patent Violation of Principles of Natural Justice with factual blunders and grave errors in tax computation in many cases despite of setting up a review unit which indicates a major flaw in the infrastructure set up for faceless assessment. This also shows that the Department is functioning with a predetermined mindset and is running a brigade with an intention to fail the scheme due to reasons best known to it. This is the major reason for increased litigation and high pendency of cases in terms of writ petitions before the High Courts and cases filed before appellate forums. Assesses who cannot afford litigation are helpless as one would have to first shed out 20% of the demand of tax raised for filing appeal before appellate authority. This is nothing but tax terrorism at its best. It’s high time we acknowledge the legal maxim “Justice Delayed is Justice Denied”. Taxpayers are put into unnecessary harassment, stress and anxiety due to laxity and fickleness of Department. The “Local Committees” formed to deal with taxpayer’s grievances arising out of high pitched assessment will be effective only if strict actions are taken against the erring officers. 6. Lastly, coming to some technical challenges – (i) With the enactment of team based assessments under faceless regime, it seems that the provisions of section 144A have been left redundant. Earlier the assesse had the power to make an application to the Joint Commissioner for issuing directions for the guidance of the A.O to enable him to complete the assessment.The CBDT vide Notification No. 62 of 2019 dated September 12, 2019 has clarified that the provisions of section 144A of the Income-tax Act, 1961 (Act), inter alia, shall apply to the assessment under the Faceless Scheme. However, prima facie, there appears to be no means to avail this statutory remedy. Hence, it is advisable to challenge non-availability of a statutory remedy by filing a Writ as the same amounts to Violation of Principles of Natural Justice. (ii) With the omission of section 144B(9) with retrospective effect, the tax payers are now left unshielded. The said sub section said that, if the prescribed procedure is not followed, such assessments would be treated as bad in law. Following of proper procedure is a crucial part in the faceless assessment, however the same is being omitted in the interest of the Revenue thereby ignoring the plight of the taxpayers. Substituting the said section with a grievance mechanism does not justify its purpose. I feel that there is a sincere need to draft provisions which would add higher responsibilities on the assessment units so that the assessments can be carried out in a fair and smooth manner. It has without any doubt prevented misuse of power and has brought transparency into the system but steps should be taken to restore faith of the taxpayers in the assessment proceedings which would make them feel safe and believe that justice will prevail. ❉ ❉ ❉ Faceless Assessment - Double Edged Sword ?

134 Ahmedabad Chartered Accountant Journal June, 2023 Taxation of Royalty and FTS is of utmost concern for developing economies and has been engaging the attention of policy makers. It is worth noting that when a foreign company invests in India or other developing markets, it invests for the purpose of earning returns. The three typical stream of income being taxed on gross basis in India are dividends, interest and royalty or Fees for technical services (‘FTS’) / Fees for included services (‘FIS’). - Dividends are paid out of post-tax profits and not deductible from the profits. - Interest, Royalty, and FTS(or FIS) reduce the tax base and consequently the taxable income of the foreign company. It is for this reason that the BEPS Action Plan 4 specifically deals with interest and has made certain recommendations relating to interest limitation that have also been incorporated in the domestic law of India. However, the BEPS project does not deal with the aspects relating to royalty/FTS. The authors have tried to bring out the issues that may arise on account of amendment to the tax rate of royalty & FTS brought in by Finance Act 2023. Background: Section 115A of the Income-tax Act (‘Act’),1961 was inserted by Finance Act,1976. Section 115A of the Act is an important provision that deals with the taxation of income received by non-residents or foreign companies in India. This provision lays down the tax rates applicable on certain incomes earned by nonresidents or foreign companies from India. One of the primary objectives of Section 115A is to ensure that non-residents and foreign companies are taxed in India for the income they earn in India. This is important because it helps to prevent tax evasion and ensures that everyone pays their fair share of taxes. One of the most important aspects of Section 115A is that it allows for the benefits of Double Taxation Avoidance Agreements (DTAAs) to be availed by nonresidents and foreign companies. DTAAs are agreements between two countries that aim to avoid the situation where a taxpayer is taxed twice on the same income by both countries. These agreements ensure that non-residents and foreign companies are not subjected to double taxation which cause major burden to them. Till 1976 there were no separate provisions in the Act to tax royalty and FTS. The general rate of tax for foreign companies then was 50% with a surcharge rate of 2.5% after the deduction of costs and expenses for earning the same i.e. net income basis. In view of the practical difficulties experienced in determining the net income basis, a new section 44AD was introduced that provided for the taxation of such income at a flat rate specified in section 115A. The section was amended time to time. However, the structure remained more or less same i.e., royalty/FTS was being charged to tax in India at a flat rate lower than the general rate but on a gross basis without any deductions. Changes in Tax Rates: The tax rates for royalty and fees for technical service (FTS) earned by non-residents or foreign companies in India have undergone several changes over the years. Below is a summary of the recent changes in tax rates of royalty and FTS: - Budget 2013-14 – rate increased to 25% from 10%: Budget Speech 2013-14 – Shri P. Chidambaram Another case is the distribution of profits by a subsidiary to a foreign parent company in the form of royalty. Besides, the rate of tax on royalty in the Income-tax Act is lower than the rates provided in a number of Double Tax Avoidance Agreements. This Amendment brough in by Finance Act 2023 on taxability of Royalty and Fees for Technical Service (FTS) under Section 115A of the Act - A big turnaround CA. Darshit Shah [email protected] CA. Malay Kalavadia [email protected]

Ahmedabad Chartered Accountant Journal June, 2023 135 is an anomaly that must be corrected. Hence, I propose to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10 percent to 25 percent. However, the applicable rate will be the rate of tax stipulated in the DTAA. Memorandum to Finance Bill 2013 India has tax treaties with 84 countries, majority of tax treaties allow India to levy tax on gross amount of royalty at rates ranging from 10% to 25%, whereas the tax rate as per section 115A is 10%. In some cases, this has resulted in taxation at a lower rate of 10% even if the treaty allows the income to be taxed at a higher rate. In order to correct this anomaly, the tax rate in case of non-resident taxpayer, in respect of income by way of royalty and fees for technical services as provided under section 115A, is proposed to be increased from 10% to 25% - Budget 2015-16 – rate again reduced to 10%: Budget Speech 2015-16 – Late Shri Arun Jaitley Today I see a lot of young entrepreneurs running business ventures or wanting to start new ones. They need latest technology. Therefore, to facilitate technology inflow to small businesses at low costs, I propose to reduce the rate of income tax on royalty and fees for technical services from 25% to 10%. Memorandum to Finance Bill 2015 In order to reduce the hardship faced by small entities due to high rate of tax of 25%, it is proposed to amend the Act to reduce the rate of tax provided under section 115A on royalty and FTS payments made to non-residents to 10% Finance Act, 2023: Government amended Finance Bill 2023 in the last week of March 23. One of the significant changes was an increase in royalty & FTS rate from 10% to 20%. Bill was thereafter approved by Lok Sabha without any debate. The amendment does not however grandfather existing agreements or arrangements. Accordingly, any payment made after 1 April 2023 will attract higher TDS of 20%. Treaty’s whip hand over Act: India has entered into DTAA agreement with many countries. Generally, rate of tax in respect of payment made for royalty and FTS is 10% to 15% under various treaties. Under Section 90(2) of the Act, a non-resident can choose to be taxed as per the provisions of a tax treaty entered into between India and the country of residence of the taxpayer or the Act, whichever is more beneficial. In order to claim benefit under DTAA, a nonresident is required to furnish a valid tax residency certificate (“TRC”) issued by the government of its country of residence. Earlier to this amendment, the tax rate (10%) provided in section 115A was either at par with certain Indian tax treaties or was lower than tax rate provided under certain Indian tax treaties. Resultantly, several nonresidents were not taking benefit under tax treaty and paying taxes as per rate provided in section 115A. Now, as the rate of tax increases from 10% to 20%, non-resident may have to take benefit of lower tax rate under relevant tax treaties. As discussed above, to take benefit under the tax treaty a non-resident must furnish TRC, Form 10F, and also substantiate beneficial ownership of income. This would increase the compliance burden on non-residents who were simply paying taxes as per the tax rate provided in the Act earlier. The change may result in an additional tax burden in case of non-residents where the tax treaty provides for a rate higher than 10% (e.g. India-USA 15%, IndiaUK 15%, India-Italy 20%, India-Canada 15%) or in a case where India does not have a tax treaty with the jurisdiction of non-resident. Also, there are certain arrangements/transactions which are not taxable under DTAA which means there is no requirement to deduct tax. Such illustrative transactions are as follows: - Certain services which are not satisfying the requirement of the “make available” clause in DTAA. Amendment brough in by Finance Act 2023 on taxability of Royalty and Fees for Technical Service (FTS) under Section 115A of the Act - A big turnaround

136 Ahmedabad Chartered Accountant Journal June, 2023 - Software payment not taxable in the right of Supreme Court decision in case of Engineering Analysis Centre of Excellence v CIT (2021) 432 ITR 471 - Technical Services incidental to installation - EPC contracts dealing with offshore and onshore services. The Amendment will adversely impact Indian payers in cases where royalty / FTS payments were being grossed-up for tax. Additional Compliance of PAN and Return filing for taxpayers who take benefit of DTAA: - Earlier, there is no requirement for non-residents to file a return of income u/s 139(1) of the Act if tax has been already deducted in respect of payment in nature of Royalty or FTS and it is the only source of income of non-residents. - Now, as the rate of tax is increased from 10% to 20%, the non-residents will take shelter of DTAA provisions. The exemption from filing of return was beneficial when tax has been deducted under the Act. However, in order to claim benefit of a lower tax deduction under tax treaty non-residents now will be required to file the return of income u/s 139(1) of the Act. Also, for filing of return of income in India, it is compulsory to obtain PAN. - The changes in tax rates increase the compliance burden on non-residents as there is a requirement to obtain a PAN and file the return of income u/s 139(1) of the Act. Interplay with Transfer Pricing Provisions: India-based large companies make royalty/FTS payments to their group companies deducting tax at the DTAA rate. In the DTAA framework, this rate is subject to a concessional rate and is available only to the extent of Arm’s length payment. DTAA contains the following limitation of the benefit clause as follows: “Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the lastmentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.” OECD commentary on Article 12 states that provisions of the Article apply only to that last mentioned amount and that the excess part of the royalty shall remain taxable according to the laws of the two Contracting States due regard being had to the other provisions of the Convention i.e. excess amount will be taxable at the rate of 20%. Following are some examples of ongoing transfer pricing litigation that is factual and legalin nature: - Royalty Payment - Appropriate rate, aggregate v/s transactional approach - Management cross charge - satisfaction of benefit test, service v/s shareholders function, duplicated cost, adequate back up document to prove performance of service - Allocation of group cost - relevance to Indian companies, cost driver, appropriateness of markup charged - Advance Pricing Agreement (APA) and Mutual Agreement Procedure (MAP) application - how agreement will impact India Company TDS obligation if APA/MAP authorities decides excess payment should be repatriated back to India. In case, it is ultimately concluded (in litigation) that the Indian company has paid higher than arm’s length price, then the Indian company will be liable to pay tax at 20%. Thus, the transfer pricing policy adopted by Companies needs to factor in increased tax risk. Concluding Thoughts: The flipping and flopping between domestic tax rate and tax treaty rate has increased significantly requiring businesses to relook their strategy on withholding taxes on payment to non-residents. Now, business will have to do a thorough cost-benefit analysis to decide on the way forward considering higher tax rate, increased documentation, various compliances and tax filing requirements. ❉ ❉ ❉ Amendment brough in by Finance Act 2023 on taxability of Royalty and Fees for Technical Service (FTS) under Section 115A of the Act - A big turnaround

Ahmedabad Chartered Accountant Journal June, 2023 137 As per clause (68) of section 2 of the CGST Act, 2017, “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly Procedure for Jobwork : Section 143 of the CGST Act provides that the principal may send and/or bring back inputs/capital goods for job work without payment of tax, under intimation to the proper officer and subject to the prescribed conditions. Rule 45 of the CGST Rules provides that the inputs, semi-finished goods or capital goods being sent for job work (including that being sent from one job worker to another job worker for further job work or those being sent directly to a job worker) shall be sent under the cover of a challan issued by the principal, containing the details specified in rule 55 of the CGST Rules. Input and Capital Goods be sent directly to Jobworker’s Premises: Principal can send inputs or Capital Goods directly to the Job worker without bringing them to his premises and can still avail the credit of the tax paid on such Inputs or Capital goods. In case of import of goods by the principal which are then supplied directly from the customs station of import, the goods may move from the customs station of import to the place of business/premises of the job worker with a copy of the Bill of Entry and the principal shall issue the challan under rule 45 of the CGST Rules and send the same to the job worker directly Time Limit for Bringing Back Input or Capital Goods meant for Jobwork The Principal is required to bring back inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year (for inputs) and three years(for capital goods), of their being sent out, to any of his place of business, without payment of tax. Extension of Time Limit The period of one year and three year may on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding one year and 2 year respectively Supply of Goods by Principal from the Place of Jobworkers premises Section 143 of the CGST Act provides that the principal may supply, from the place of premises of a job worker, inputs after completion of job work or otherwise or capital goods (other than moulds and dies, jigs and fixtures or tools) within one year or three years respectively of their being sent out, on payment of tax within India, or with or without payment of tax for exports, as the case may be. This facility is available to the principal only if he declares the job worker’s place of business / premises as his additional place of business or if the job worker is registered. In case of exports directly from the job worker’s place of business/ premises, theLUT or bond, as the case may be, shall be executed by the principal. Since the supply is being made by the principal, it is clarified that the time, value and place of supply would have to be determined in the hands of the principal irrespective of the location of the job worker’s place of business/premises Records to be maintained: The responsibility of keeping proper accounts ofthe inputs and capital goods sent for job work lies with the Principal. Treatment of Waste and Scrap generated during Job work : As per Section 143 (5) of the CGST Act provides that the waste and scrap generated during the job work Job Work - Some Issues CA. Rikin Parikh [email protected]

138 Ahmedabad Chartered Accountant Journal June, 2023 may be supplied by the registered job worker directly from his place of business or by the principal in case the job worker is not registered. Deemed Supply of Input or Capital Goods As per the provisions contained in section 143 of the CGST Act, if the inputs or capital goods (other than moulds and dies, jigs and fixtures or tools) are neither received back by the principal nor supplied from the job worker’s place of business within the specified time period, the inputs or capital goods (other than moulds and dies, jigs and fixtures or tools) would be deemed to have been supplied by the principal to the job worker on the day when such inputs or capital goods were sent out to the first job worker. Date of supply when the goods are not returned within stipulated time limit : The date of supply shall be the date on which such inputs or capital goods were initially sent to the job worker and interest for the intervening period shall also be payable on the tax. Disclosure of Jobwork Challan details in GST Return: The details of Challan in respect of goods send to Jobworker or received back from a Job workers during a specified period shall be included in Form GST ITC 04 to be furnished for that period on or before 25th day of the month succeeding the said period or within such time as extended by Commissioner by notification in this behalf. Specified period: It shall mean period of Six Consecutive months commencing on the 1st day of April and the 1st day of October in respect of a principal whose aggregate turnover during the immediately preceding financial year exceeds Rs 5 crore and A financial year in any other case. Document required for Movement of Input or Capital goods meant for Job Worker Rule 45 of the CGST Rules provides that inputs, semifinished goods or capital goods shall be sent to the job worker under the cover of a challan issued by the principal, including in cases where such goods are sent directly to a job worker. Further, rule 55 of the CGST Rules provides that the consignor may issue a delivery challan containing the prescribed particulars in case of transportation of goods for job work. It may be noted that rule 45 provides for the issuance of a challan by the principal whereas rule 55 provides that the consignor may issue the delivery challan. The third proviso to rule 138(1) of the CGST Rules provides that the e-way bill shall be generated either by the principal or by the registered job worker irrespective of the value of the consignment, where goods are sent by a principal located in one State/ Union territory to a job worker located in any other State/ Union territory. Procedure for Transfer of Input or Capital Goods from one Job worker to another Job worker Where the goods are sent from one Job worker to another Job worker, the Challan may be issued either by the Principal or the Job worker sending the goods to another Job worker. Transitional Provision As per provision of Section 141 of CGST Act 2017, where any inputs received at a place of business had been removed as such or removed after being partially processed to a job worker for further processing, testing, repair, reconditioning or any other purpose in accordance with the provisions of erstwhile law prior to the appointed day and such inputs are returned to the said place on or after the appointed day, no tax shall be payable if such inputs, after completion of the job work or otherwise, are returned to the said place within 6 months from the appointed day. However, the competent authority may extend the period on sufficient cause being shown for a further period of 2 months. In case if the goods are not returned with the stipulated time period (including extended time limit) then the Input Tax Credit is liable to be reversed. It is pertinent to note that Transitional Provision is applicable to Inputs and Semi Finished goods only. A declaration in FORM GST TRAN-1 is to be submitted within 90 days of the appointed (further period not exceeding 90 days), specifying therein, the stock of the inputs, semi-finished goods or finished goods, as applicable, held by the job worker on the appointed day. The said details is to be furnished by both Principal Job Work - Some Issues

Ahmedabad Chartered Accountant Journal June, 2023 139 and Job work in terms of Rule 119 read with Rule 117 of CGST Rules. Supply of Job work services : Job Worker is a service provider and also liable to pay GST once registered. In this case Job Worker is required to charge for his value of services including but not limited to the material stores, spares, items, moulds jigs, fixtures, etc., which are purchased by him for providing the services to the principal. The Value of the service by the job worker will be in line of Section 15 of CGST Act i.e. related to valuation of goods and services. Hence the transaction value will be the value of services in case of job worker. However if any material which is forming part of purchase cost of the principal for inputs, semi-finished goods, spares, mould, jigs and fixtures which are factored by the principal in its cost then such items are not to be included in the service value of the job. In other words if raw-material and moulds worth Rs.1200/- are supplied by principal to the job worker on which the services are provided by the job worker worth Rs.100 (100 includes all expenses of job worker plus profit), the GST will be charged by the job worker on Rs.100/- only as the material and moulds cost is already factored by the principal. (Please note this is the case were services are provided by the job worker and goods are returned back to the principal.) He shall issue an invoice at the time of supply of the services as determined in terms of section 13 read with section 31 of the CGST Act. GST Rate on Job Work : CBIC has made the following changes in GST Rate in relation to Job Work vide Notification No.- 20/2019-CT (R) dated: 30 Sep 2019. Changes in Rates effective from 1.10.2019 are as follows:- A Brief analysis of Job Work Rate to be Charged is as follows:- Principal Job Worker GST Rate* Remarks Registered Registered 12% W.e.f. 1st Oct 2019 as per Notification No.- 20/2019- CT (R) Dated: 30 Sep 2019 Unregistered Registered 18% If the Principal is not registered than the rate of GST to be charged in case of Job work is 18% Registered / Unregistered Unregistered NA GST is not applicable as Job worker is not liable for registration Some of Important Question in Job work Transaction: 1) Does Input include Intermediate Goods ? Yes, Input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or Jobworker. Such intermediate product can also be removed without the payment of tax. 2) Whether the job worker can use his own goods for providing the service of Job work and whether he is eligible for ITC in respect of inputs, etc. used by him in supplying job work services? Yes. In addition to the goods received from the Principal, he can use his own goods for providing the service of job work. It is also clarified that the job worker is also eligible to avail ITC on inputs, etc. used by him in supplying the job work services if he is registered. 3) Whether it is violation of Section of 143 of CGTS Act, if moulds, Dies, Jigs, fixtures and tools are not brought within the time stipulated specified for Job work ? No. The provision of returning the goods as stipulated in Section 143 of CGST Act is not * Not applicable for specified services mentioned GST Tariff Heading 9988 in clause (i), (ia), (ib) and (ic). Note : The Job work rate for diamond related industry is reduced from 5 % to 1.5 % effective from 1.10.2019. For engineering related service the rate of Job work is reduced from 18 % to 12 %, however the said rate is not applicable to Bus Body building related service as the Job work rate for bus body building would remain at 18% only. Job Work - Some Issues

140 Ahmedabad Chartered Accountant Journal June, 2023 applicable in case of moulds, dies, jigs, fixtures and tools. 4) What’s the turnover limit applicable to Job worker for obtaining registration under GST ? The job worker is required to obtain registration only if his aggregate turnover, to be computed on all India basis, in a financial year exceeds the specified threshold limit (i.e. Rs 20 lakhs or Rs. 10 lakhs in case of special category States except Jammu & Kashmir). 5) Can department question on the Quantum of Scrap generated at Job workers premises? The department cannot ask for GST on higher value of scrap provided that principal is not allowing scrap more than what is generated.Pearl soap & Co.187 ELT 460 CESTAT Mumbai. The Principal should maintain records of the scrap generated on the premises of Job worker 6) Can Principal avail ITC if the Input or Capital goods are send directly to the premises of Job worker ? As per Section 19(2) and Section 19(5) of CGST Act, 2017, ITC can be availed by the principal even if such inputs / capital goods are not being first received by the principal and are directly sent to the job worker. 7) In case goods are not returned in prescribed period and treated as deemed supply as per section19(3) then question arises as to whether the job worker is eligible for availing credit of the GST paid by the principal by considering the same as deemed supply as per Section 19 (3) of the CGST Act, 2017. Ans: Where goods are not returned in prescribed period, the principal has to issue invoice and declare such supplies in his return for that particular month in which the time period of one year / three years has expired. The date of supply shall be the date on which such inputs or capital goods were initially sent to the job worker. Since date of invoice will be of current period, the job worker is eligible to avail the credit of the same. Moreover, as per second proviso to section 16 (2) of the CGST Act, 2017 the job worker has to pay the said amount to the principal. The same may be done by way of making payment in cash or returning the said goods as supply of the job worker. For this, the job worker has to raise his own tax invoice stating principal as buyer. 8) What will be the transaction value if due to some dispute between Principal and Job worker, goods are not returned by the Job worker ? Ans) It is a well settled position in earlier laws that the valuation for the same goods should be considered transaction value by the job worker and not market value of the said goods by the principal. The same was decided by Hon’ble Supreme Court in the case of Pawan Biscuits & Co. [2000 (120) ELT (24)]. 9) Is Principal required to declare Job workers Place as Additional Place of Business The principal shall not supply the goods from the place of business of a job worker in accordance with the provisions of this clause unless the said principal declares the place of business of the job worker as his additional place of business except in a case - (i) where the job worker is registered under section 25; or (ii) where the principal is engaged in the supply of such goods as may be notified by the Commissioner. 10 ) If goods meant to be sent out for Job work are lost in transit, whether the principal is required to reverse credit under section 17(5)(h) or it will be deemed supply as per section 19(3) ? Ans) Since goods are lost or destroyed, section 17(5) (h) will be applicable and the principal is required to reverse the credit on inputs or capital goods, and it will not be treated as deemed supply. 11) Whether the Value of Supply of goods (after the completion of Job work) shall be included in the aggregate turnover of Job worker? Ans) The supply of goods (after completion of job work) by a registered job worker shall be treated as the supply of goods by the principal and the value of such goods shall not be included in the aggregate turnover of the registered job worker. ❉ ❉ ❉ Job Work - Some Issues

Ahmedabad Chartered Accountant Journal June, 2023 141 Re-assessment u/s 147 – Notice Beyond 4 years The notice was issued after 4 years from the end of the relevant assessment year to re-open an assessment completed u/s 143(3) of the Act . The department had not discharge the onus to show that there was a failure on part of the assessee to fully and truly disclose all material facts necessary for assessment and that the re-opening was only due to a change of opinion which was not permissible. ACIT vs E-Land Apparel Ltd. (453 ITR 23) ACIT vs Parle Products Pvt Ltd (453 ITR 768) Faceless Assessment – Validity – Sec.144B(9) of I.T.Act One of the requirements u/s 144B is to serve upon the assessee a show cause notice along with draft assessment order. When no such specific show cause notice u/s 144B was issued, the assessment order was held to be non-est but High Court allowed liberty to initiate fresh proceedings against the assessee. Addl.CIT vs Tatwajnana Vidyapeeth (453 ITR 217) Re-assessment – Sanction of Commissioner – SLP Rejected Where the High Court dismissing departmental appeal from Tribunal quashing the notices issued u/s 148 held that while according sanction to re-open the assessment, the JCIT had only recorded, ‘yes’, I am satisfied and that the mechanical way of recording satisfaction was unsustainable, the SLP was rejected. CIT vs S.Goyanka Lime and Chemical Ltd. (453 ITR 242) Glimpses of 7 Advocate Samir N. Divatia [email protected] Exemption u/s 11 – Educational Institution – Surplus Income The Tribunal holding that salary paid to the trustees were duly accounted and reflected in their ITRs as income, the proviso to sec.2(15) introduced by Finance Act 2008 would not be applicable to the assessee imparting education and where the object of the trust include charitable purpose, even if incidentally involved in carrying on commercial activities. CIT vs Krupanidhi Education Trust (453 ITR 750) Arts. 226, 30 and 19(1)(g) – Maintainability of writ against Private person or body If action impugned before writ court has no nexus with public element, even though the private body in question may be discharging public function, held, writ jurisdiction cannot be invoked in such a case. The power of judicial review under Art 226 can be exercised even if body against which action is sought is not ‘State’ or instrumentality of a State provided there is public element in action complained of. It must be established that body or person was seeking to achieve relief for collective benefit of public and had authority to do so. The right originating from private law cannot be enforced taking aid of writ. St.Mary’s Education Society vs Rajendraprasad Bhargava (2023) (4 SCC 498). ❉ ❉ ❉ 8 Rulings 10 9 11

142 Ahmedabad Chartered Accountant Journal June, 2023 Section 45(5A) inserted from 01-04-2018 and its retrospectivity: Pankaj Kumar &Ors. Vs. Commissioner of Income Tax & Ors. (2023) 117 CCH 0012 Pat HC Issue: Whether sub-section (5A) inserted by way of an amendment in the Finance Act, 2017, expressly stated to be effective from 01.04.2018 cannot be treated as retrospective? Held: “20. We refer to paragraph 65 of Godrej and Boyce Manufacturing Company Ltd. (supra), wherein the principles of retrospectivity were succinctly stated; which we also have extracted herein above. The date from which the amendment is made operative, though does not conclusively decide the question, the issue of retrospectivity has to be considered by examining the scheme of the statute prior to the amendment and subsequent to the amendment, to determine whether the amendment is clarificatory or substantive. In addition to the fact that the amendment is expressly stated to be effective only from 01.04.2018, the benefit of including the consideration by way of a transfer as capital gains in the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority, was confined to individuals and Hindu undivided families. This very clearly indicates that the benefit was intended to be conferred only on two classes of assessees and this fact especially works against the contention of the amendment being clarificatory. The amendment also cannot be stated to have intended to remedy unintended consequences or to render a statutory provision workable. It cannot be related back to the date of enactment of the original provisions, as an amendment supplying a remedial effect. 21. Section 2(47)(v) read with Sections 45 & 48 remains as such, applicable to all assesses who transferred a capital asset coming within the definition of Section 53A of the Transfer of Property Act, except those individuals and Hindu undivided families, who by virtue of a JDA transferred the capital assets after 01.04.2018. 22. The power of the legislature to make an amendment, with retrospective effect is undisputed but the requirement is that unless the same is expressed in clear language or implied, without any scope for doubt, then the amendment would only be prospective. An amendment can be taken as impliedly retrospective only when it is intended at removing an obvious anomaly or correcting a blatant error or obliterating an absurdity or bringing it in consonance with any other law or the Constitution. In fact, in such cases the legislature brings in the amendment by way of a substitution and even when a provision is substituted, it would be retrospective only if it is so expressed or follows from necessary intendment, as is implicit from the language implied. In the present case, the amendment made effective from 01.04.2018 is expressly stated to be prospective from that date and there can be no intendment ferreted out since the above noted deficiencies are totally absent. We find no discrimination having been visited on individuals or Hindu undivided families, for whom there was a change made in the manner, or the previous year in which the computation of total income is made, which was effective only insofar as the agreements entered into after 01.04.2018.” CA. Jayesh C. Sharedalal [email protected] From the Courts 21

Ahmedabad Chartered Accountant Journal June, 2023 143 Conversion of firm into a company, revaluation of assets in the firm prior to conversion and section 47(xiii): Principal CIT Vs. Salapuria Soft Zone (2023) 117 CCH 0002 KolHC : (2023) 225 DTR 0313 (Cal) Issue: Whether mere revaluation amount being credited to the partners current account upon conversion to company, the partners did not get any extra right to withdraw any sum out of the said revalued amount and hence it did not jeopardise the claim of exemption u/ s 47(iii)? Held: “7. The case of the revenue is that the amount of revaluation of the land and building which was credited to the current accounts of the partners which was treated as loans to new companies amounted to accrual of consideration or benefit to the partners which was a transfer and therefore the firm is liable to pay tax on long term capital gain and short term capital gain. Further the partners have withdrawn the amount of revaluation reserve without paying the taxes on the revalued amount. On facts it has been established that revaluation of the fixed assets did not give rise to any profit to the partnership firm and there is no accrual of benefits in the hands of the partners and if that be so can there be any tax liability in the hands of the firm as well as in the hands of the partners. The learned tribunal after noting the accounting treatment followed by the assessee on facts found that no profit allotment on account of revaluation has accrued or arisen to the assessee firm and the revaluation of fixed asset did not give any profit to the firm and the revaluation was done so that the value of the fixed assets in the balance sheet would match the market price and the object behind such revaluation is to avail loans from banks and financial institutions by showing market price of the fixed assets in the balance sheet. Thus, in our view, the learned tribunal rightly rejected the contention raised by the revenue and also rightly noted the decision of the Hon’ble Supreme Court in Sanjeev Woolen From the Courts Mills Versus Commissioner of Income Tax, (2005) 279 ITR 434 (SC) wherein it was held that valuation of the assessee at market value, which was higher than the cost, resulted in the imaginary or notional potential profit out of itself and not any real profit or income which can be taxed. 8. The next aspect which the tribunal dealt with was with regard to the applicability of Section 45(4) of the Act. It was noted that the said provision would apply when there is a distribution of assets to the partners so that its application can be justified and it can apply only when there is a transfer and secondly only when there is a distribution of assets to the partners. Further the tribunal noted that Section 47(xiii) is also complied with if it is held that there is a transfer of capital asset to a company, the clauses of Section 47(xiii) are fulfilled and thus even if it is held that there is transfer of capital asset by the firm to a company as a result of succession, the same is not charitable, as the condition prescribed therein are complied with. Thus, the tribunal concluded that looking at either angle, the capital gain is not eligible to tax. Similar was the finding for the assessment year 2009-2010 and the tribunal noted that mere revaluation amount being credited to the partners current account upon conversion to company, the partners did not get any extra right to withdraw any sum out of the said revalued amount. Furthermore, the tribunal rightly noted that for the assessment year 2009-2010, the revaluation had taken place in the preceding year and the amount had already been credited in the preceding year and only the conversion has taken place in the assessment year 2009-2010. The following facts noted by the tribunal would be relevant. The assets were revalued in the financial year 2007-2008 relevant to the assessment year 2008-2009 and the corresponding amount was credited to partners current account in the assessment year 2008-2009 itself and as such the partners were entitled to withdraw any sum out of such current account from the assessment year 2008-2009 etc. Taking note of this fact and also the relevant clauses in the partnership deed, the tribunal rejected the conclusion of the assessing officer that upon 22

144 Ahmedabad Chartered Accountant Journal June, 2023 conversion of such partnership firm to company under Part IX of the Companies Act, the character of the current account had changed. The tribunal placed reliance on the decision in the case of Ram Krishnan Kulwant Rai Holdings Private Limited and took note of the facts of the assessee’s case and held that there is no distribution of assets but only taking over of the firm by company and as such there is no transfer of capital assets as contemplated in Section 45(1) or Section 45(4) of the Act. Further the mere revaluation amount being credited to the partner’s current account and upon conversion of the firm as a company, the partners did not get any extra right to withdraw any sum out of the said revalued amount and accordingly rejected the revenue’s appeal.” Audit Objection and reassessment (under the old law): Adani Power Rajasthan Limited Vs. Assistant Commissioner of Income Tax (2023) 116 CCH 0383 Guj (HC) Issue: Whether the reassessment proceedings u/s 147 initiated on the basis of an audit objection are valid? Held: The honourable Court while allowing the SCA of the assessee held as follows. “13. The co-ordinate Bench after analyzing the detailed case law on this subject has considered the issue and as such, we may deem it proper to quote hereunder the relevant observations made in the said judgment precisely paragraph 9 to 12:- 9. This Court made it quite clear that the Assessing Officer himself initiated the reassessment proceedings without his own conviction and only at the instance of the audit party which was termed to be a coulourable exercise of jurisdiction and the same was not sustained. 10. The two decisions of the Apex Court which are heavily relied upon will need to be considered at this stage. It is to be noted that this Court in Vodafone West Ltd (supra), has already referred to the Lucas T.V.S. It was a case where the auditor’s opinion in regard to the interpretation of law was questioned to be treated by the Assessing Officer as information. The Court, while considering the submissions of both the sides, has held that apart from the information furnished by the audit party, the Assessing Officer had no other information for reopening under Section 147B. The opinion expressed by the audit party in the matter before the Apex Court showed that they had pointed out to the Assessing Officer that he failed to apply the provision contained in Section 35. This, according to the Apex Court, would amount to pointing out the law and the interpretation of the provisions contained in Section 35, which is barred by the decision of the Apex Court in Indian & Eastern Newspaper Society V.CIT [1979] 119 ITR 996. It was a case where the Tribunal has cancelled the order of reassessment and on reference, the High Court held that apart from the information furnished by the audit party, the Assessing Officer had no other information for reopening. The views taken by the Tribunal and the High Court, both were upheld by the Apex Court and the appeals had been dismissed. This would, on the contrary, help the cause of the assessee. 11. So far as the P.V.S.Beedies (P) Ltd. (supra) is concerned, it was a case of reopening of assessment because in the original assessment, the donation made to a charitable trust were held by the Assessing Officer to be eligible for deduction under Section 80G. It was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on 22.9.1972. Since it had expired before 1.4.1973, for the assessment year 1974- 75 and 75-76, the trust was not recognized charitable trust and therefore, the donation to the trust did not qualify for deduction under Section 80G as a donation made to a recognized charitable trust. The audit party had pointed out a fact that had been overlooked by the Assessing Officer in the assessment. When the Tribunal and the High Court held that 23 From the Courts

Ahmedabad Chartered Accountant Journal June, 2023 145 the information given by the internal audit party could not be treated as information within the meaning of Section 147B, the Court held that the factum of the recognition granted to the charitable trust since had expired on 22.9.1972 was not noticed by the Assessing Officer. It was not a case of information of question of law. The dispute as to whether the reopening is permissible after audit party expresses an opinion on a question of law was considered by a larger Bench of the Apex Court in the case of Lucas T.V.S.Ltd. (supra) wherein, the Court held that the reopening of the case on the base of a factual error pointed out by the audit party is permissible under the law and there can be no dispute that the audit party is entitled to point out such factual error or omission in the assessment. 12. Here is a case where, admittedly, audit party had expressed the opinion on a question of law. It had also pointed out to the Assessing Officer and that information which had been given was on question of law. This has been dealt with in Lucas T.V.S. Ltd. and even otherwise, the facts of the instant case clearly make out that when the audit party had pointed out to the Assessing Officer, it not only was disagreeing with the information given on the law point, it had completely disagreed after examining the objections raised by the audit party. In paragraph 3 and paragraph 6, it has said that after carefully examining, the objections are not acceptable and they need to be dropped. The Assessing Officer, without any conviction, when has issued the notice, this surely is not a case where the reopening of the case is on the basis of any factual error pointed out by the audit party so as to be covered by the decision of the P.V.S.Beedies (P) Ltd. On the contrary, it is covered by those decisions which have been discussed in reopening on the part of the Assessing Officer essentially on the audit party opinion and not on the basis of his own conviction. There is no material worth the name emerging that to indicate any independent application of mind could be noticed. On the contrary, there are glaring facts which have been pointed out that the Assessing Officer had no subjective satisfaction while issuing the notice of reopening. Therefore also, in this background, it is a settled law that any notice of reopening issued by the Assessing Officer without any independent application of mind would laid the validity. Accordingly, this petition is allowed. Notice dated 21.3.2021 along with the order dated 25.10.2021 are quashed and set aside.”” Deduction of ‘prior period expenses’ which got crystalized in current year: Principal CIT Vs. Balmer Lawrie And Company Limited (2023) 116 CCH 0294 Kol (HC) Issue: Whether the Learned Tribunal erred in law in holding that the prior period expenses of Rs. 4,08,23,000/- as an allowable expense in the instant assessment year which is patently wrong in as much as the assessee is following mercantile systems of accounting and as such the prior period expenses cannot be allowed during the assessment year in question? Held: “4. The tribunal after taking note of the factual position noted that the CIT(A) has taken specific note of the fact that the expenses claimed by the assessee as prior period, the liability to pay had crystallized during the relevant previous year and therefore the claim was allowed. Further the tribunal noted that no appeal was preferred by the revenue against the orders of the CIT(A) for the assessment years 2007-2008 to 2009-2010 and the appeals filed by the revenue for the assessment years 2010-2011 and 2011-2012 were dismissed by the tribunal. Further the tribunal has pointed out that the revenue was unable to bring any material or fact to disprove the assessee’s explanation furnished before the authorities in support of its claim that liability to pay expenses charged under the head “prior period” crystallized during the financial year 2011-2012. Further on perusing the details furnished by the assessee with regard to those expenses, the tribunal noted that the 24 From the Courts

146 Ahmedabad Chartered Accountant Journal June, 2023 assessee had claimed deduction in respect of items which were revenue in nature and therefore fully allowable in arriving at its business income. Further the learned tribunal has pointed out that the revenue did not controvert the contention raised by the assessee that no deduction in respect of these expenses was allowed in the prior years and the tax rate in the earlier years and in the year under consideration were same and therefore irrespective of the year of deduction allowed, the revenue’s effect was taxed neutral. The learned tribunal also referred to the decision of the High Court of Gujarat in PCIT Versus Adani Enterprises Limited Tax Appeal No. 566 of 2016 and found the said decision to be relevant to the facts and circumstances of the case. Thus, we find that the learned CIT(A) and the learned tribunal has examined the facts and granted relief to the assessee and more importantly that for the earlier assessment years i.e. 2005-2006, 2009- 2010, the revenue has accepted the orders passed by the CIT(A). Though the appeal was filed before the tribunal for the assessment years 2010- 2011 and 2011-2012, the same were dismissed. Thus, a consistent view is required to be adopted in the absence of any material placed by the revenue before the required tribunal to show that there was any distinguishing feature in the assessment year under consideration to make a departure from the earlier view.” Assessee inadvertently offers a receipt to tax though it is not liable to tax: Can it be taxed? Principal CIT Vs. Ansal Properties And Infrastructure Limited (2023) 116 CCH 0303 Del (HC) Issue: If the assessee has itself offered a receipt to tax, albeit with a caveat in the return of income, whether such receipt could be taxed? Held: “15. The other argument made by Mr Sanjay Kumar, learned senior standing counsel, who appears on behalf of the appellant/revenue, is that the Tribunal could not have gone beyond the assessment order, given the fact that the respondent/assessee itself had included the surplus as income chargeable to tax in its return of income. 15.1 To our minds, this argument misses the point (something which the Tribunal has noted) which is that the assessee had entered a caveat in the return of income. It is not disputed that a note was incorporated in the return wherein it was explained as to how the surplus arose in the instant case on transfer of Trunk Infrastructure/capital work-inprogress. 16. Besides this, in our view, it is more than wellestablished that merely because the assessee inadvertently offers a receipt for levy of tax, tax cannot be levied by the revenue if it is not otherwise constitute income of the assessee. Every receipt is not an income chargeable to tax under the provisions of the Act. 17. Accordingly, we find no good reason to interfere with the impugned order passed by the Tribunal. In our opinion, no substantial question of law arises for our consideration.” Obligation for TDS from payment: Determination of nature of payment is vital: DLF Homes Panchkula Pvt. Ltd. &Ors. Vs. JCIT (Osd) & Ors. (2023) 116 CCH 0263 Del HC :(2023) 226 DTR 0001 (Del) Issue: What is the obligation of the assessing officer if he wants to hold against the assessee for a default in the nature of non deduction of income tax at source (TDS)? Held: “21. In the present case, the Revenue does not seek to support the decision of the AO that EDC are ‘rent’ or in the nature of ‘rent’. Thus, concededly, the fundamental reasoning on which the impugned order rests is fundamentally flawed. 22. The contention that the AO has merely referred to a wrong Section of the Act and therefore, the said reference may be ignored is also without merit. As noticed above, the AO has not only held that TDS was liable to be deducted under Section 194- From the Courts 25 26

Ahmedabad Chartered Accountant Journal June, 2023 147 I of the Act, he has also proceeded to analyse the said Section and hold that EDC are in the nature of rent. He has, in addition, also applied the rate of TDS at the rate of 10% for assessing the petitioner’s liability. 23. The reasoning of the AO for finding that the petitioner was obliged to deduct TDS is important. The determination of the nature of payment is vital for ascertaining whether there was any obligation on the part of the petitioner to deduct and deposit TDS on EDC. The Revenue appears to be approaching the issue from quite the reverse direction; it has for an inexplicable reason, concluded that assessees ought to deduct TDS from EDC and now seeks to find provisions of law to sustain the said conclusion. In BPTP’s case (supra), the AO had initiated reassessment proceedings on the ground that assessee was required to deduct TDS under Section 194[7] of the Act; apparently, on the premise that EDC is dividend. However, before the court, it was argued on behalf of the Revenue that EDC is rent and therefore TDS was required to be deducted from payment of EDC. In the present case, the AO has proceeded on the basis that EDC is rent but the Revenue contends that it is a payment to contractor attracting the provisions of TDS under Section 194C of the Act. (emphasis supplied) 24. It is apparent from the above, that the approach of the Revenue is flawed. We reject the contention that the findings of the AO regarding the nature of EDC charges as well at the provisions referred by him for determining the petitioner’s liability are not material.” Rule of consistency in income tax assessment proceedings: CIT Vs. Swami Omkarananda Saraswati Charitable Trust (2023) 453 ITR 0245 (All), Issue: Whether if the facts remain the same in subsequent years can the assessing officer take a different view of the matter and make an addition? Held: “9. While none may sucessfully contend or invoke res judicata in taxation matters, at the same time, in absence of any difference of fundamental fact or law arising in subsequent Assessment Year and in face of the same dispute having been thrashed out inter partes in earlier Assessment Year and a definite opinion having been formed by the Tribunal for the same as had also attained finality and has been consistently applied in the case of the assessee itself (over different Assessment Years), which orders have also attained finality, the rule of consistency would commend that view to prevail, in all succeeding Assessment Years. 10. To allow the revenue to re-agitate decided issues solely because each Assessment Year is a separate unit for which a fresh assessment order is to be passed, would be to make a mockery of judicial decision making. Revenue goals apart, the primary need of good tax administration remains transparency, predictability and certainty. Revenue may seek to take different view over same or similar facts involved in different years, based on different appreciation of such facts, arising primarily from different officers coming to deal with those facts in different Assessment Years. 11. That circumstance or occurrence is natural and unavoidable in the running of the State machinery. Yet, it may never be forgotten, the little entity that the assessee is, suffers the process adopted by the gigantic State machinery to yield the precious oil of tax, remains the same. It may not be exposed to multiple and different crushing processes, every year, in the ambitious desire to extract more oil/ revenue. 12. Being the live force that grants the State its legitimacy and purpose to exist, the little entity that the assessee is, must be protected and assured of same assessment process year after year, to grant to it an environment in which it may not only survive but may look to thrive. The decision in Radhasoami Satsang (supra) has been consistently applied by Courts for the last more than three decades. Therein it was observed:- 27 From the Courts

148 Ahmedabad Chartered Accountant Journal June, 2023 “We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.” 13. That view expounded by two bench decision of the Supreme Court was reiterated by a three bench decision of that Court in CIT Vs. Excel Industries Ltd (2013) 358 ITR 295. It has been consistently applied by Courts to ensure predictability and certainty in tax litigation. 14. In the present case also, in view of absence of any change to the law and in absence of any fresh facts shown to be involved in the Assessment Year in question, we do not find, the Tribunal has committed any error in pressing into service the rule of consistency and enforcing on the revenue its view taken in the case of the assessee for the A.Y. 2010-11.” Sale of software by a Non resident in India through a distributor arrangement with no right of use of copyright: Milestone Systems A/S Vs. Deputy CIT (International Taxation) (2023) 116 CCH 0447 DelHC (2023) 225 DTR 0369 (Del) Issue: Whether TDS is deductible u/s 195 from the payments made for purchase software where the payer or end user does not get any right to use the copyright? Held: “9. As noted hereinabove, it is the petitioner’s case, that the Software sold by it to its distributor partners under the Distributor Agreement does not confer, either on the distributor partner or the reseller, the right to make use of the original copyright which vests in the petitioner. This plea was sought to be supported by the petitioner, by relying upon the judgment of the Supreme Court in Engineering Analysis, wherein inter alia, the Court has ruled, that consideration received on sale of copyrighted material cannot be equated with the consideration received for right to use original copyright work. Therefore, in our opinion, this central issue had to be dealt with by the concerned officer. Instead, as is evident on a perusal of paragraph 4 of the impugned order, the concerned officer has simply by-passed the aforementioned judgement of the Supreme Court by observing that the revenue has preferred a review petition, and that the same is pending adjudication. 10. According to us, as long as the judgment of the Supreme Court is in force, the concerned authority could not have side stepped the judgment, based on the fact that the review petition had been preferred. It would have been another matter, if the concerned officer had, on facts, distinguished the judgment of the Supreme Court in Engineering Analysis. 10.1That apart, in our view, the least that the concerned officer ought to have done was to, at least, broadly, look at the terms of Distributor Agreement, to ascertain as to what is the nature of right which is conferred on the distributor partner and/or the reseller.” Genuineness of Commission Payment : Oripol Industries Ltd. v/s. ITO 451 ITR 379 (Orisa) Issue : What is the requisite for allowing commission payment? Held: It is not a sheer coincidence that three of the seven persons to whom commission was paid happened to be directors of the appellant and the remaining four were relatives of such directors. Particularly, with the appellant not being able to demonstrate their special expertise to procuring iron ore fines (IOF) from the markets in India, the Assessing Officer appears to be justified in disallowing the commission in so far as it was paid to the said seven persons. The Assessing 28 29 From the Courts Continued to page 172

Ahmedabad Chartered Accountant Journal June, 2023 149 PVR Pictures Ltd. v. DCIT150Taxmann.com 148 (Del) Assessment Year:2012-13, Order dated : 10th March 2023 Basic Facts The assessee furnished its return of income computing total income under normal provisions of the Act. Likewise, book profit under section 115JB was also computed at Nil. During the assessment proceedings, the book profit was re-determined by the AO at Rs. 1,10,12,730/-. The AO computed the tax liability on such book profits accordingly.In the first appeal, the assessee contended that it is entitled to adjust the book profit by way of brought forward loss or depreciation as per books of account whichever is less in terms of clause (iii) of Explanation 1 to section 115JB(2) of the Act. The CIT(A) upheld the AO’s working on the ground that the Explanation does not state that the position of loss or unabsorbed depreciation has to be considered on year-to-year basis i.e., the assessee has to aggregate the losses as well as the profits for all the year and then it will be allowed loss brought forward or depreciation whichever is less. The assessee is before the ITAT Issue: Whether expression employed in provision of clause (iii) of Explanation 1 to section 115JB(2) is “unabsorbed depreciation” and not “depreciation” which reflects intention of legislature that in any earlier year if there is some standalone book profit, depreciation of that year stands adjusted to extent of profit so available and balance unabsorbed depreciation, if any, only should be taken for purposes of adjustment under section 115JB Held The Tribunal has reproduced the working as done by the assessee & CIT(A): 13 CA. Yogesh G. Shah [email protected] CA. Aparna Parelkar [email protected] Tribunal News Years Total Unabsorbed (Profit)/Loss Remarks Depreciation [excluding depreciation] Assessee working: As on 1-4-2009 Profit (1,01,94,143) Opening profit after absorbing Depreciation as on 1-4-2009 F.Y. 2009-10 1,83,22,628 Loss 1,95,00,645 Total book loss for FY 2009-10 of Rs. 3,78,23,273/-include both book loss (excluding depreciation) Rs. 1,95,00,645/- and unabsorbed depreciation of Rs. 1,83,22,628/- F.Y. 2010-11 22,18,04,962 Total Book loss (including depreciation) Rs. 22,18,04,962 (A) Depreciation Rs. 393,803,227 (B) Standalone profit (excluding depreciation) (-) Rs. 17.19.98.265 (A)-(B) Thus, total loss of Rs. 22,18,04,962/- represent unabsorbed depreciation after part absorption against such profits (393803227 — 171998265) Total 24,01,27,590 93,06,502 Total b/f loss (excluding depreciation) is less than total unabsorbed depreciation. CIT(A) working As on 1-4-2009 Profit (1,01,94,143) Opening profit after absorbing Depreciation as on 1-4-2009 F.Y. 2009-10 1,83,22,628 Loss 1,95,00,645 Total book loss for FY 2009-10 of Rs. 3,78,23,273/-include both book loss (excluding depreciation) Rs. 1,95,00,645/- and unabsorbed depreciation of Rs. 1,83,22,628/-

150 Ahmedabad Chartered Accountant Journal June, 2023 In Tribunal’s view, the assessee has correctly considered the figure of unabsorbed depreciation for Financial Year 2010-11 at Rs. 22,18,04,962/- in its working which portion has remained unabsorbed against the existing book profits of that year. The CIT(A) in tribunal’s view, had wrongly considered the entire depreciation allowance of Rs. 39,38,03,227/- instead of restricting itself to the unabsorbed component. The figure of Rs. 39,38,03,227/- considered by the CIT(A) is total depreciation allowance instead of unabsorbed depreciation and thus the position taken by the CIT(A) is contrary to the phraseology of clause (iii) of Explanation 1 to Section 115JB(2). Clause (iii) of Explanation 1 to section 115JB(2) uses the expression ‘unabsorbed depreciation’ which has distinct connotations vis-àvis total depreciation. Accordingly, the tribunal found merit in the plea of the assessee in justification of the computation of adjustment available to it against the book profit. In this view of the matter, the claim of the assessee of Rs. 93,06,502/- being lower of unabsorbed depreciation and business loss deserves to be set off against the current year book profit in terms of the provisions of clause (iii) of Explanation 1 of section 115JB(2) of the Act was upheld and the tribunal reversed the action of the CIT(A) and allow the claim of the assessee. Sukumar Solvent (P.) Ltd. v. ACIT Legatum Ventures Ltd. V ACIT, 150 Taxmann.com193 (Kol) Assessment Year: 2011-12, Order dated: 16th March 2023 Basic Facts Assessee paid freight charges to transporters by obtaining their PAN details. The AO held that payments were made in violation of provisions of section 194C(7) Tribunal News and therefore, disallowance was made under section 40(a)(ia). Assessee’s contention that in terms of provisions of section 194C(6) once transporters provide PAN details to deductor then no deduction was required to be made on freight payment to such transporters as per section 194C was rejected even by the CIT(A). The Assessee is before the tribunal. Issue Whether provisions of section 194C(6) is independent of section 194C(7) and just because there is violation of provisions of section 194C(7) disallowance under section 40(a)(ia) would not arise if assessee complies with provisions of section 194C(6) Held The assessee relied on the decision of co-ordinate bench in the case of Soma Rani Ghosh v. Dy. CIT [2016] 74 taxmann.com 90 (Kol. - Trib.) in ITA No. 1420/Kol/ 2015 where the Tribunal held that section 194C(6) or 194C(7) are independent to each other when condition as mentioned in section 194C(6) has been satisfied and need not required to comply with the provisions of section 194C(7) of the Act. On the other hand, the. DR argued and contended that the provisions of section 194C(6) and 194C(7) are inter dependent and in assessee’s case non-compliance by filing of TDS return, its claim was rightly set aside. The Tribunal referred to the case of ACIT v. Mohammed Suhail [IT Appeal No. 1536 (Hyd.) of 2014, dated 13-2-2015] which specifically held that provisions of section 194C(6) is independent of section 194C(7) and just because there is violation of provisions of section 194C(7) disallowance of u/s 40(a)(ia) does not arise if the assessee complies with the provisions of section 194C(6) of the Act. 14 Years Total Unabsorbed (Profit)/Loss Remarks Depreciation [excluding depreciation] F.Y. 2010-11 39,38,03,227 Profit (17,19,98,265) Total Book loss (including depreciation) Rs. 22,18,04,962 (A) Depreciation Rs. 393,803,227 (B) Standalone profit (excluding depreciation) (-) Rs. 171998265 (A)-(B) Ld. CIT(A) considered the figures of Standalone profit (excluding depreciation) and Depreciation separately without absorbing such profits against depreciation. Total 41,21,25,855 Profit 16,26,91,763 Total b/f loss (excluding depreciation) is Nil. Unabsorbed depreciation is Rs. 41,21,25,855/-

Ahmedabad Chartered Accountant Journal June, 2023 151 10. In view of the above judgement rendered by the co-ordinate bench and following the judicial reasoning delineated in the above judgment, the tribunal found that the assessee had complied with the provisions of section 194C(6) disallowance u/ s 40(a)(ia) does not arise just because there is violation of provisions of section 194C(7) of the Act. The Indian Institute of Banking & Finance (Formerly known as the Indian Institute of Bankers) v CIT(E)TS-260-ITAT-2023 (Mum) Assessment Year:2016-17 to 2019-20, Order dated: 17th May 2023 Basic Facts The assessee is an Indian company incorporated under section 26 of the Indian Companies Act, 1913 on 30/04/1928, whose name was changed to the Indian Institute of Banking and Finance from 28/08/ 2003. The assessee claiming itself to be an educational institution existing solely for educational purposes and not for the purpose of profit filed an application dated 24/10/2017 seeking exemption under section 10(23C)(vi) of the Act for the assessment year 2017-18. Upon perusal of the aforesaid application and the details filed by the assessee, it was observed that the object of the assessee prima facie shows that the entire work of the institution is related to developing professionally qualified and competent bankers and financial professionals, to encourage innovation and creativity among finance professionals. Thus, no public is being served with the services of the institution and the assessee was not imparting any formal education or normalschooling. It was also observed that every year there is a huge surplus which indicates that the activities are conducted with the motive of profit. The CIT(E) vide impugned order rejected the application filed by the assessee seeking exemption under section 10(23C)(vi) of the Act on the ground that the assessee is conducting very substantial noneducational activities such as collecting fees for examination, earning Royalty from publications, providing services to members, and earning hefty fees for membership, it certainly cannot be said to be existing solely for education. It was also carrying out the activities with a clear objective of earning profit year after year and generating surplus. Accordingly it did not solely exists for education and not for profit, which is the spirit of section 10(23C)(vi) of the Act. Being aggrieved, the assessee is in appeal before tribunal. Issue Whether the Appellant existed solely for educational purpose and was not involved in commercial activities Held ITAT noted that coordinate bench in Assessee’ s own case for AY1996-97 had held that Assessee’s activities qualify for exemption under Section 10(22). As per the Tribunal conditions of Section 10(22) are identical to conditions of Section 10(23C)(vi), but notesthat although coordinate bench did not apply the predominant object test, as the said ruling. Based on the objects of the Assessee as per Tribunal first leg ofAssessee’s objectives may seem to be for the purpose of education, the other objectives appear to be topromote professional development, sharing information with such professionals, and sharing statisticsrelating to the business of banking and finance. The Assessee provided a daily e-newsletter,publishes monthly newsletter and quarterly journal on banking, finance, which are also available on theportal free of cost. The Assessee earned royalty income from publications by providing copyright to publishing houses which according to Tribunal cannot be equated to sale of textbooks dealt in NewNoble Education Society ruling. The Tribunal thus, helds that Assessee provided copyright to publishing houses with the objectof earning profits and not solely for purpose of education. Based on the SCruling in New Noble Education Society held that Assessee is not existing solely for purposes ofeducation, opines that all the objects of the Assessee are not for the purpose of education as the objectsinclude the dissemination of information helpful to professionals in the banking and finance industry fortheir professional development. Even though the Assessee has claimed that its objects have remained unchanged, however, the Assessee has modified the way of its functioning in comparison toearlier years and cannot be said to be existing ‘solely’ for the purpose of education. Tribunal News 15

152 Ahmedabad Chartered Accountant Journal June, 2023 DCIT, International Taxation v. Kalpataru Power-transmission 149 Taxmann.com 484 (Ahd) Assessment Year 2018-19, Order dated 21st March 2023 Basic Facts: The assessee is a company engaged in the business of Engineering, Procurement and Construction (EPC) contracts. During the AY 2018-19, the assessee made payment to a UAE based company for services of towers design including designing of its foundation and structural drawing, for one of the EPC projects executed by the assessee’s branch office in Uganda.The assessee did not deduct tax at source (TDS) on the aforesaid payment on the basis that the payment was in the nature of fees for technical services (FTS) made to a company based out of UAEfor earning income outside India. The payment to UAE Co was not chargeable to tax in India as per India-UAE tax treaty.The TDS officer on verification held that the assessee had made payment to UAE Co for various services mentioned in Explanation 2 of section 9(1)(vi) of the ITA (relating to royalty deemed to accrue or arise in India) and the payment was in the nature of royalty and not FTS.The payment made by the assessee was in the nature of royalty because the service agreement mentioned that it was drawing of tower which fell under the copyright of the service provider.Accordingly, the TDS officer treated the assessee as assessee-indefault under section 201(1) and section 201(1A) of the Act for non-deduction of TDS. Aggrieved, the assessee filed an appeal before the AppealsCIT(A) who allowed the assessee’s appeal by holding that the assessee entered into service agreement with the UAE Co for carrying out project specification study, preparation of tower designs, preparation of structural drawings of tower, preparation of tower test data documents etc.There was no existing design of tower structure which was supplied to the assessee, but it was a case of actual rendering of services where the UAE Co. was required to create a new design in the course of rendering the service under the Service Agreement based on the specifications provided by the assessee.As per the agreement, once designs were prepared by UAE Co, the ultimate customer had the exclusive ownership of said design and all rights including in any of such design belonged to the ultimate customers i.e., entities of Uganda.Thus, the service agreement was to generate designs and not for granting rights to the assessee to use an existing design. Therefore, the payments could not be regarded as royalty. With regard to taxability as FTS, since the services were provided by UAE Co to the assessee outside of India and also since the services were utilized for the purpose of the business of the assessee outside of India, the assessee was covered by the exclusion clause provided in section 9(1)(vii)(b) of the Act and the payment was not chargeable to tax in India under domestic law as FTS.Aggrieved by the CIT(A)’s order, the Revenue filed an appeal before the Tribunal Issue: Whether where payments were made to UAE company to carry out services of project specification study, preparation of tower designs, preparation of structural drawings of tower, preparation of tower test data documents etc. and various other services as mentioned in service agreement same qualified as FTS and were not Royalty payments Whether in absence of FTS clause in India UAE tax treaty, payment made by assessee did not qualify as FTS under India-UAE DTAA and in absence of PE of UAE company in India, assessee had no obligation to withhold taxes on such payments Held: There was no existing tower structure design or data etc. which was supplied to the assessee by UAE Co. It was a case of actual rendering of services where the UAE Co was required to create a new design in the course of rendering the service under the service agreement based on the specifications provided by the taxpayer.Therefore, since fresh designs involved active rendering of services as per the specifications of the assessee inthe service agreement, the agreement did not qualify as royalty agreement and the payments were towards rendering of technical services. It was a well-settled law that if there is no FTS clause in the tax treaty, then the payments can be subject to tax in India only if the overseas company which has rendered the services has a permanent establishment (PE) in India and then such services Tribunal News 16

Ahmedabad Chartered Accountant Journal June, 2023 153 may be taxed under Article 7 of India-UAE tax treaty as business income.Accordingly, in absence of FTS clause in the India-UAE tax treaty, payment for design services could not be taxed in India, unless it was established that UAE Co had a PE in India. There was no allegation that UAE Co had a PE / business connection in India so as to hold that the services may be taxable in India under Article 7 of the India-UAE tax treaty. Since the payment did not qualify as FTS under the India-UAE tax treaty, in absence of FTS clause in the treaty, there was no requirement for the assessee to withhold taxes on such payments made to UAE Co.In view of the above, the ITAT held that the assessee was not under an obligation to withhold taxes on payments made to UAE Co. ITP Publishing India (P.) Ltd.v.ACIT 148 Taxmann.com 250 (Mum) Order dated 13th January 2023, Assessment Year 2013-14 Basic Facts: During relevant assessment year, the assesseecompany made reimbursement of expenses to its Dubai based parent company.The AO observed that the invoices raised to assessee were with respect to accounts, management accounting, human resource services, information technology services, Production services (design) and production services (coordination). The AO held that the services were in the nature of managerial, technical and consultancy services and thus, the payments made by assessee were in nature of fees for technical services. Consequently, he disallowed said payments under section 40(a)(ib) for non-deduction of tax at source.On appeal, the CIT(A) upheld the order of the AO.On appeal to the Tribunal: Issue: Whether reimbursement of expenses in nature of general administrative expenses without mark to parent company were covered under section 9 as fees for technical services Held: The revenue failed to establish clearly that under which category of income as defined in sections 5 and 9, transaction falls. The transaction was not even referred to TPO which further strengthens the contention of the assessee that transaction under consideration did not have any element of mark-up/profits. The essential element of income to the parent company is not establish by the AO while applying section 195 and section 40(a)(ib). There was nothing special, exclusive, or customized service that is rendered by the parent company. The payment was not for any special needs of the assessee but were facility provided by the parent. Thus, the payment made by the assessee in question is not a consideration for managerial or technical or consultancy services and that being the position, it cannot fall within the ambit of section 9(1)(vii). If a non-resident earns any income from India by means of operations carried on outside India, that will not fall within the scope of section 9(1)(i). In the case under consideration the parent company has rendered ‘International services’ outside India which fact is not dispute by the revenue, accordingly section 9(1)(i) would not be applicable. Accordingly,the payment remitted by the assessee neither falls under section 9(1)(i) nor under section 9(1)(vii). Accordingly, it was held that that payments remitted by the assessee to its parent company do not attract the provisions of section 5 and section 9.Even if it is assumed that assessee’s remittances falls in section 9 still revenue did not establish the basic condition of section 195 i.e., income element. In view of this payments made by assessee without TDS will not attract disallowance under section 40(a)(ib) read with sections 195 and 9. TPG Growth II Markets Pte. Ltd. V DCIT TS346-ITAT-2023 (Mum)-TP Order dated 6th June 2023, Assessment Year 2017-18 Basic Facts: The assessee, TPG Growth II Market Holdings Pte. Ltd. and TPG Growth II SF Pte.Ltd. are private limited companies incorporated under the Singapore Laws and engaged in investment activities. Therefore, during the assessment proceedings , the AO noted that the assessee had, during the previous year 2016-17, entered into international transactions of purchase of shares, sale of shares & there was allotment of shares.The Assessee had selected Other Method as the most appropriate method and benchmark the transaction on the basis of valuation report, dated 17/ Tribunal News 17 18

154 Ahmedabad Chartered Accountant Journal June, 2023 11/2016 wherein the value of shares was determined by an independent valuer by following Discounted Cash Flow Method which was same as the actual purchase consideration paid by the Appellant to its AE. While TPO accepted the ‘Other Method’ as the Most Appropriate Method for benchmarking the transaction of purchase of shares, the TPO rejected the valuation report from independent valuer furnished by the Appellant. Instead of the projected figured, the TPO used the actual financial results for determining the value of shares of using Discounted Cash Flow Method (DCF Method), to arrive at the value of INR 2,155.06/- per share of SIPL as against INR 8,042.98/- determined in the valuation report of the independent valuer relied upon by the assessee. Thus, the TPO concluded that the Appellant had made excess payment of INR 5,814.91/- per share for purchase of 9,15,762/- equity shares. Further, TPO treated the excess payment as loan to the AE and charged notional interest on the same at the rate of LIBOR + 2.43% per annum and proposed transfer pricing addition of on account of notional interest. The TPO passed an order, proposing transfer pricing adjustment. In the Objections filed by the Appellant against the Draft AssessmentOrder, the DRP granted partial relief . The Assessing Officer passed the Final Assessment Order, as perthe directions issued by the DRP. The assessee is in appeal before the Tribunal. Issue: Whether the TPO was right in adopting actual financial results for valuation of shares byreplacing the projected financial values in original valuation, completely disregarding the fact that Discounted Cash Flow (‘DCF”) method of valuation takes into account future projections and also disregarding that such action tantamount to ‘impossibility of the performance’ to use actual results, were not available at the time of preparation of the valuation report. Held: The Tribunal referred to the decision of Hyderabad Bench of Tribunal in the case of DQ (International) Ltd. Vs. ACIT: [ITA No. 151/Hyd/2015], which was followed by the Mumbai Bench of the Tribunal in the case of Aaradhana Realties Limited V DCIT [ITA No. 2195/MUM/ 2014 wherein it was held by the Tribunal that while computing value of intangible asset by using DCF Method the future projections cannot be substituted with the actual figures.The Department has also placed reliance on BEPS: Action 8 dealing with OECD Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles. The tribunal noted that the Guidance for Tax Administrations provided that it would be incorrect to base revised valuation on actual cash flows without taking into account the said probability. The Tribunal noted that no such scrutiny or probability-weighing was done by the TPO. Rule 10B(5) of the Rules provides for use of current year data or data pertaining to financial year immediately preceding current year. The proviso to Rule 10B(5) deals with the availability of data of current year subsequent to the determination of arm’s length price and permits use of the same for determination of ALP during assessment proceedings even though the data was not available at the time of furnishing of the return of income. Thus, Rule 10(5) does not provide for or deal with the data pertaining to future/subsequent years. The data used by the TPO pertains to years subsequent to the current year. Thus, Rule 10B(5) also does not further the case of the Revenue.A perusal of Rule 10D(1)(j) of the Rules would show that a person undertaking an International Transaction is required to maintain a record of the actual working carried out for determining the ALP, including details of the comparable data and financial information used in applying the Most Appropriate Method, and adjustments, if any, which were made to account for differences between the international transaction and the comparable uncontrolled transactions. This also shows that the data which is required to beused and maintained by the Appellant has to be data available at the time of determining the ALP [with proviso to Rule 10B(5) providing exception to the aforesaid general rule]. In view of the above, Tribunal rejected the approach adopted by the TPO for the purpose of determining the value of shares by substituting actual financial results for the projected results in the DCF valuation furnished by the Appellant. ❉ ❉ ❉ Tribunal News

Ahmedabad Chartered Accountant Journal June, 2023 155 In this issue, we are giving gist of a recent decision rendered by the I.T.A.T., Ahmedabad in the case of DCIT vs. Croygas Equipments Pvt. Ltd. in ITA No.415/ Ahd/2020 for the Asst. Year 2014-15, where the issue was regarding disallowance of deduction u/s.10AA on the ground that assessee has failed to file Form No.56F along with the return of income in the e-filing mode. The Hon’ble Tribunal has discussed threadbare the issue relating to late filing of Form No.56F (but filed before the Assessing Officer during the course of assessment proceedings) and has upheld the allowability of deduction u/s.10AA of the Act. Though Form No.56F has been deleted from the Income Tax Rules, the ratio of the above decision could be applied in respect of e-filing of several forms for getting the deductions under the Income Tax Act under several provisions where the assessee has failed to file form electronically but has filed the same during the course of assessment proceedings. We hope the readers would find the same useful. Annexure In the Income Tax Appellate Tribunal “A” Bench, Ahmedabad Before Ms. Annapurna Gupta, Accountant Member and Shri Siddhartha Nautiyal, Judicial Member ITA No.415/Ahd/2020 Assessment Year: 2014-15 The DCIT, Vs. Croygas Equipments Pvt. Ltd. Vadodara Vadodara. (Appellant) (Respondent) Assessee by : Shri Tushar Hemani, Sr. A.R. & Shri Parimalsinh B. Parmar Revenue by : Shri Mukesh Jain, Sr. D.R. Date of hearing : 08.06.2023 Date of pronouncement : 16.06.2023 GIST only In this appeal, there were two issues involved, viz. (i) Disallowability of deduction u/s.10AA on the ground that assessee did not e-file Form No.56F as required under Rule 12(2) of the Income Tax Rules, and (ii) Restricting the allowance u/s.10AA on the ground that the assessee has claimed excess deduction u/s.10AA of the Act on the basis of comparison of net profit with that of the sister concern. In the present gist, we are confining ourselves to the decision of the Hon’ble Tribunal for the first issue. Facts of the case: 1. The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the Assessing Officer observed that the assessee did not e-file its form 56F claiming deduction u/s. 10AA of the Act as required under Rule 12(2) of the Income Tax Rules. The assessee submitted before the Assessing Officer that e-filing of form 56F had started from assessment year 2014-15 and this was the first year where the Income Tax Rules required the assessee to e-file from 56F. The assessee have got the audit report from the auditor under form 56F but had inadvertently omitted to submit the same under the mistaken belief that it could be filed during the course of assessment as and when requisitioned by the Assessing Officer. The assessee further submitted that non e-filing of form 56F is just a procedural lapse and deduction should not be disallowed on this ground alone. Further, the CA. Sanjay R. Shah [email protected] Unreported Judgements

156 Ahmedabad Chartered Accountant Journal June, 2023 assessee also submitted physical copy of form 56F to the Assessing Officer during the course of assessment proceedings. However, the Assessing Officer denied the claim of deduction u/s. 10AA of the Act to the assessee on the ground that procedural lapse under Rule 12 of the Income Tax Rules is not permissible since the assessee failed to e-file form 56F despite the directions as per Rule 12(2) and hence deduction u/s. 10AA of the Act is not allowable to the assessee. The Assessing Officer further held that date of audit report in form 56F cannot be relied upon since the assessee did not intentionally file form 56F with the return of income. Further, the Assessing Officer held that filing of form 56F is mandatory and the contention of the assessee that e-filing of form 56F is directory cannot be accepted. Accordingly, the Assessing Officer disallowed the deduction claimed by the assessee u/s. 10AA of the Act amounting to Rs. 2,14,03,816/-. In appeal, the ld. CIT(A) allowed the claim of the assessee on the basis of various decisions relied upon by the assessee which held that the filing of form 56F is directory in nature and failure to furnish form 56F along the return of income should not lead to denial of deduction u/s. 10AA of the Act. 2. Against the aforesaid decision of the C.I.T.(Appeals) granting benefit of deduction u/ s.10AA, Department went in appeal before the Tribunal. The principal contentions of the Department before the Tribunal were as follows: (i) The assessee was required to e-file Form 56F along with the return of income and noncompliance of this mandatory requirement would lead to denial of deduction u/s. 10AA of the Act. (ii) Departmental Representative placed reliance in the case of Summit India Water Treatment and Services Ltd. vs. PCIT 107 taxmann.com 444 (Ahmedabad Trib) which held that furnishing of form 3CEB report electronically is mandatory as per Rule 12(2) of the Income Tax Rules. Unreported Judgments On the other hand, he Counsel for the assessee submitted that the requirement of filing Form 56F is directory in nature and failure to furnish the same with return of income could not be basis to deny benefit u/ s.10AA of the Act specially when Form 56F has been filed at the assessment stage when the claim was being considered by the learned Assessing Officer. Decision of the Triunal: 3. The Tribunal, after considering the facts of the case, held as under: (i) It is well accepted principle of law that beneficial provisions should be given a liberal construction. Once the assessee has satisfied the conditions laid down for claiming deduction/exemption under the relevant beneficial provision, the same should not be denied. Therefore, exemption benefits u/s.10AA cannot be denied to the assessee on account of a procedural lapse committed by the Chartered Accountant of the assessee. The Tribunal, for this purpose, relied upon a recent judgment of Hon’ble Supreme Court in the case of Mother Superior Adoration Convent [2021] 126 taxmann.com 68 (SC). (ii) The Tribunal also relied upon the decisions of IPCA Laboratory Ltd. v. Dy. CIT [2004] 12 SCC 7421 (SC), Bajaj Tempo Ltd. v. CIT [1992] 3 SCC 78 (SC) and Kishorbhai Harjibhai Patel v. ITO [2019] 107 taxmann.com 295 (Gujarat-HC). The Tribunal referred to the above decision of Gujarat High Court in the case of State of Gujarat v. S.A. Himnani Distributors (P.) Ltd. [2014] 43 taxmann.com 358 (Gujarat-HC), which held that when State is inclined to give some tax benefit to tax payers, terms or provisions of policy should be interpreted in a liberal manner and with an intention to see that purpose for which policy is framed is fulfilled and beneficiaries are helped and the interpretation must not be such which would frustrate objective of policy. Section 10AA of the Act is a beneficial provision aimed at encouraging exports of goods and services

Ahmedabad Chartered Accountant Journal June, 2023 157 by setting up of industrial units in special economic zones. In our view, benefit of section 10AA should not be denied on account of a procedural/technical default by the assessee or his chartered accountant, if otherwise the assessee is eligible to claim deduction under the said exemption provision. (iii) The Tribunal also referred to the decision of Pr. CIT v. Wipro Ltd. [2022] 140 taxmann.com 223, which was against the assessee in the following terms: “6.3.1.In our view, the aforesaid decision would not apply to assessee’s set of facts and would not preclude / prohibit the assessee from claiming deduction u/s 10AA of the Act, for the following reasons: (i) Firstly, in the case of Wipro Limited supra, the issue for consideration before the Hon’ble Supreme Court was that in the original return of income, the assessee had claimed deduction under section 10B of the Act, whereas in the revised return filed under section 139(5) of the Act, assessee did not claim deduction under section 10B of the Act, and instead claimed benefit of carry forward of losses. It was in light of these facts that the Hon’ble Supreme Court held that on a plain reading of section 10B(8) of the Act, it is clear that where assessee claimed benefit under section 10B(8) by furnishing declaration in revised return much after due date prescribed under section 139(1), same was to be denied as requirement of furnishing declaration before AO before due date of filing original return under section 139(1) was a mandatory condition not directory. However, notably, there is no such equivalent/similar provision in section 10AA of the Act, which gives an option to the assessee to file a declaration before the due date of return of income under section 139(1) of the Act, to the effect that the provisions of this section may not be made applicable to him, for the impugned assessment year. Therefore, going by the strict language of section, the relevant statutory provisions on which the decision of Wipro was based, were on a different footing. Further, the issue for consideration in the Wipro case is also distinguishable, since in the assessee’s case, it had claimed benefit of deduction u/ s. 10AA in the original return of income (and only Form 56F was omitted to be e-filed alongwith return of income), whereas the issue for consideration in Wipro case supra was that once the assessee had claimed benefit of section 10B in the original return of income, whether such benefit could be foregone/withdrawn by filing declaration u/ s. 10B(8) of the Act in the revised return of income filed u/s 139 (5) of the Act (and the assessee could, in turn, avail the benefit of carry forward losses in the revised return of income). (ii) Secondly, the Hon’ble Supreme Court in the case of Wipro Limited held that section 10B of the Act is an “exemption provision” and hence, assessee claiming such exemption has to be “strictly” comply with the exemption provisions. However, notably, the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd 391 ITR 274 (Supreme Court), held that section 10A of the Act is a “deduction provision” and not an “exemption provision”. Therefore, apparently there seems to be a difference of opinion to whether section 10A/B provisions qualify as “Exemption” or Deduction” provisions. Therefore, since it is well-settled principle of law that deduction provisions, which have been introduced in the Statute to provide incentive to the assessee, should be construed “liberally”, in our considered view, once it is not disputed that the instant set of facts, the assessee claimed the benefit of provisions under section 10AA in the return of income (which in our view is a mandatory/directory requirement), the benefit of section 10AA cannot be denied only on the ground that Unreported Judgments

158 Ahmedabad Chartered Accountant Journal June, 2023 the assessee could not file Form 56F along with the return of income (being a procedural requirement), especially when Form 56F has been filed by the assessee at the assessment stage when such claim was being considered by the Assessing Officer. (iii) Besides the above, in the case of G. M. Knitting Industries (P.) Ltd. case supra, the Hon’ble Supreme Court further held that even though necessary certificate in Form 10CCB along with return of income had not been filed but same was filed before final order of assessment was made, assessee was entitled to claim deduction under section 80-IB of the Act as well. Therefore, in light of the decision of Yokogawa supra (which is held that section 10A of the Act is a “deduction provision” not an “exemption provision”) and the decision of G. M. Knitting Industries case supra, which have been rendered on a similar facts as that of the assessee i.e. claim of deduction was made in the original return of income itself, in our view, the ratio laid down in the Wipro Ltd case would not disentitle assessee to claim benefit of section 10AA of the Act, since it has been rendered on a different set of facts. Therefore in our considered view, once such claim has been made in the original return of income and assessee has also furnished Form 56F during the course of assessment proceedings itself, before the assessment was finalized. The assessee should not be denied the benefit of s. 10AA of the Act. It is a well settled principle of law that if there is any ambiguity regarding interpretation of a Statutory provision, an interpretation favourable to the assessee may be taken, especially when we are dealing with Statutory provisions aimed at giving some incentive to the assessee.” (iv) The Tribunal also further considered the decision of Vizag Tribunal in the case of M/ s. ACN Info-Tech vs. ACIT ITA No. 79/Viz/ 2017, Mumbai Tribunal in the case of ITO v. Accentia Technologies 52 taxmann.com 89 (Mum) and Gujarat High Court decision in the case of Zenith Processing Mills v CIT 219 ITR 721 (Guj) and ultimately held that the Assessing Officer has denied section 10AA benefit on account of an inadvertent error on the part of the assessee in not efiling Form 56F along-with return of income. Further, there is sufficient compliance if the Form 56F has been filed during the course of assessment proceeding, since there is no material objective to be achieved by the assessee in not e-filing the same, once the same was already available with the assessee. 4. In view of the above, the Tribunal held that CIT(A) has not erred in facts and in law in allowing the claim of the assessee that deduction u/s. 10AA of the Act cannot be denied simply on the ground that the assessee did not e-file form 56F along with the return of income, when the assessee had furnished form 56F to the ld. Assessing Officer during the assessment proceedings when the claim of deduction u/s.10AA of the Act was being examined by the ld. Assessing Officer. ❉ ❉ ❉ Unreported Judgments

Ahmedabad Chartered Accountant Journal June, 2023 159 Explanation 2 to S. 263 of the Income Tax Act explained. Pr CIT v. Shreeji Prints (P.) Ltd. [2021] 130 taxmann.com 294 (SC) 1. Heard Mr. Balbir Singh, learned Additional Solicitor General in support of the petition. 2. We do not see any reason to interfere in the matter. The Special Leave Petition is, accordingly, dismissed. 3. Pending applications, if any, also stand disposed of. Pr CIT v. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 293 (Guj.) xxx… 2 The Revenue has proposed the following questions as substantial questions of law: “(a) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is correct in holding that the PCIT was not empowered and entitled to revise assessment order u/s. 263 of the Act r/w Explanation 2 thereto by ignoring that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue in as much as the Assessing Officer has passed the assessment order without making inquires/verification in the light of the unsecured loans of Rs. 2.49 Crores received from M/s. Georgette Tradecom Pvt. Ltd (GTPL) and M/s. PurbaAgro Food Pvt. Ltd (PAFPL)? xxx… 4 Being aggrieved by the order passed by the PCIT under section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after 3 Advocate Tushar Hemani [email protected] Judicial Analysis considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under: xxx… 15 The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the show-cause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision: CIT v. Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem -270 ITR 0157 (MP,CIT v. Ganpet Ram Bishnoi - 296 ITR 0292 (Raj.), Cadila healthcare Ltd. v. Cl 7, Ahmedabadh-1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Saí Contractors v. ITO [ITO no. 109Nizag/2002] and Pyarelal Jaiswal v. CIT, Vamnesi [(2014) 41 taxmann.com 27& (AII Trib.)]. It was contended by the Learned Counsel that clause -(a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of 4

160 Ahmedabad Chartered Accountant Journal June, 2023 Narayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., v. PCIT in ITA No.3205/Del/2017 and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 taxmann.com 671 (Ahd. - Trib.). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee’s claim of loan similar vi ew were also expressed by the Hon’ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6-2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification ‘which should have been made’ will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142I14/2015T PL], Dated 27-11- 2015 which is reproduced hereunder: “53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it/ s prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression “erroneous in so far as it/3 prejudicial to the interests of the revenue” has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015.” “17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already Judicial Analysis

Ahmedabad Chartered Accountant Journal June, 2023 161 taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case. 18 In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdiction under section 263 of the Act. The case laws relied by the ld. CIT(D.R.) are distinguishable on facts and in law hence, by the ld. Counsel as well and we concur the same hence not applicable to present facts of the case. Therefore, in absence of the same, the ld. CIT ought to have not exercised his jurisdiction under section 263 of the Act. Therefore, we cancel the impugned order under section 263 of the Act, allowing all grounds of appeal of the Assessee.” 5 The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law. xxx… Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 taxmann.com 671 (Ahmedabad - Trib.) xxx.. 9. The Pr.CIT has drawn support from newly inserted Explanation 2 below Section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 01.06.2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification ‘which should have been made’ will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of Section 263 of the Act. 9.1 The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142/14/2015- TPL], Dated 27-11-2015 which is reproduced hereunder: ’53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it Judicial Analysis 5

162 Ahmedabad Chartered Accountant Journal June, 2023 is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2The interpretation of expression “erroneous in so far as it is prejudicial to the interests of the revenue” has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner.— (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3Applicability: This amendment has taken effect from 1st day of June, 2015.’ 9.2 A bare reading of the Circular gives a somewhat impression that the Explanation 2 was inserted for the purpose of providing clarity on the expression ‘erroneous insofar as it is prejudicial to the interest of the Revenue’. The Explanation being clarificatory would not lead to dilution of the basic requirements of Section 263(1) of the Act. The provisions of Section 263 although appears to be of a very wide amplitude and more particularly after insertion of Explanation 2 but cannot possibly mean that recourse to Section 263 of the Act would be available to the Revisional Authority on each and every inadequacy in the matter of inquiries and verification as perceived by the Revisional Authority. The Revisional action perceived on the pretext of inadequacy of enquiry in a plannery and blanket manner must be desisted from. The object of such Explanation is probably to dissuade the AO from passing orders in a routine and perfunctory manner and where he failed to carry out the relevant and necessary inquiries or where the AO has not applied mind on important aspects. However, in the same vain where the preponderance of evidence indicates absence of culpability, an onerous burden cannot obviously be fastened upon the AO while making assessment in the name of inadequacy in inquiries or verification as perceived in the opinion of the Revisional Authority. It goes without saying that the exercise of statutory powers is dependent on existence of objective facts. The powers outlined under section 263 of the Act are extraordinary and drastic in nature and thus cannot be read to hold that an uncontrolled, unguided and uncanalised powers are vested with the competent authority. The powers under section 263 of the Act howsoever sweeping are not blanket nevertheless. The AO cannot be expected to go to the last mile in an enquiry on the issue or indulge in fleeting inquiries. The action of the Revisional Commissioner based on such expectation requires to be struck down. 9.3 The use of expression ‘which should have been made’ in clause (a) to Explanation 2 to Section 263 of the Act is significant. This impliedly tests the action of AO on the touchstone of reasonableness and rationality in approach. It clearly suggests that context also holds the key in the matter of enquiry. The action of the AO requires to be evaluated contextually. If the aforesaid Explanation is read in a abstract manner de horse the test of reasonableness and context, the powers of Revisional CIT would be rendered invincible and almost every assessment order can be possibly frustrated. A nuanced understanding of Explanation suggests that inadequacy in inquiry ought to be of cardinal nature to ignite the potent powers of review. Judicial Analysis

Ahmedabad Chartered Accountant Journal June, 2023 163 9.4 As noted, the assessee is a very big player in the pharma sector and enormity of operation is to be kept in mind. Thus what is relevant is to weigh as to what countervailing circumstances were prevailing which ought to have provoked such enquiry by a reasonable person instructed in law. In the instant case, apart from noticing that each and every issue raised in the notice were subject matter to enquiry in one way or the other, we also cannot remain oblivious of the facts that the financial accounts of the assessee are subjected to various kinds of audits under different Acts and the assessee being a listed company is presumed to function in a disciplined and regulatory environment. In the context of the mammoth scale of operation coupled with regularity of the scrutiny assessment year after year, we find apparent plausibility and sufficient strength in the contentions raised on behalf of the assessee in its defense. Having regard to colossal volume, the serious time and capacity constraints saddled upon AO while raising pitch for deeper examination must be borne in mind. 9.5 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to Section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed the order in great detail after making several allowances and disallowances on the issues involved impliedly after due application of mind. Therefore, the Explanation 2 to Section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case. xxx… Sir Dorabji Tata Trust v. DCIT [2020] 122 taxmann.com 274 (Mumbai - Trib.) xxx… 18. We find that the case of the Commissioner hinges on, what he perceives as, lack of inquiry, the inadequacy of inquiry, or taking up the pertinent line of inquiry but not following it to its logical conclusion. Learned Departmental Representative has also been very gracious to submit that none doubts the philanthropic work being done by the assessee trust but the short question before us really is whether or not the due verifications have been carried out by the Assessing Officer. The stand of the learned Commissioner has simply been reiterated by the Departmental Representative, and a lot of emphasis is placed on the fact in the light of Explanation 2 to Section 263 once Commissioner is of the view, as he has been on the facts of this case, that “the order is passed without making inquiries or verification which should have been made”, the order is required to be treated as erroneous and prejudicial to the interest of the revenue. Therefore, we must examine the nature of inquiries conducted by the Assessing Officer and whether these inquiries were so deficient as to render the order ‘erroneous Judicial Analysis 6

164 Ahmedabad Chartered Accountant Journal June, 2023 and prejudicial to the interests of the revenue’, within meanings of that expression assigned under section 263. 19. The question that we also need to address is as to what is the nature of scope of the provisions of Explanation 2(a) to Section 263 to the effect that an order is deemed to be “erroneous and prejudicial to the interests of the revenue” when Commissioner is of the view that “the order is passed without making inquiries or verification which should have been made”. 20. Undoubtedly, the expression used in Explanation 2 to Section 263 is “when Commissioner is of the view,” but that does not mean that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the Commissioner. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the Commissioner’s view that “the order is passed without making inquiries or verification which should have been made”. Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when circumstances so justify or warrant. Even if the words used in the statute are prima facie enabling, the courts will readily infer a duty to exercise a power which is invested in aid of enforcement of a right—public or private—of a citizen. [L HirdayNarain v. ITO [1970] 78 ITR 26 (SC). As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be, Commissioner cannot legitimately form the view that “the order is passed without making inquiries or verification which should have been made”. The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the Assessing Officer is expected to be. 21. That brings us to our next question, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessment proceedings. Is he to doubt or test Judicial Analysis

Ahmedabad Chartered Accountant Journal June, 2023 165 every proposition put forward by the assessee and investigate all the claims made in the income tax return as deep as he can? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the income tax return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the income tax return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an Assessing Officer is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon’ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 “it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the income tax return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills [(1896) 2 Ch 279,], in respect of the role of an auditor, would equally apply in respect of the role of the Assessing Officer as well. His Lordship had said that an auditor (read Assessing Officer in the present context) “is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound.”. Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer’s notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the Assessing Officer is taken bona fide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. In the case of Malabar Industrial Co Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83, Hon’ble Supreme Court has held that “Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.” The test for what is the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he should have done in the ideal circumstances, but what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bona fide in a realJudicial Analysis

166 Ahmedabad Chartered Accountant Journal June, 2023 life situation. It is also important to bear in mind the fact that lack of bona fides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. On a similar note, a co-ordinate bench of the Tribunal, in the case of Narayan Tata Rane v. ITO [2016] 70 taxmann.com 227 (Mum.) has observed as follows: “20. Clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld. Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the Ld. Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made.” 22. Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in the exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and ask the Assessing Officer to conduct such inquiries or verifications afresh. xxx… ❉ ❉ ❉ Judicial Analysis

Ahmedabad Chartered Accountant Journal June, 2023 167 1. Brief background: - Taxability of share transfer transactions carried out by a non-resident has always been a subject matter of scrutiny by the tax department. In this article, we shall try to debate on availability of indexation benefit and applicable tax rate to nonresident seller who is selling shares of an Indian Company which is listed on recognised stock exchange through an off-market transfer to person(s) who is / are tax resident of India. - For the sake of simplicity, we shall assume the following : a. Equity shares of listed Indian Company are held as “capital asset” by the non-resident seller; b. Equity shares qualify as “long term capital asset”; c. Equity shares of listed Indian Company were acquired by the non-resident seller by utilising foreign currency; and d. The non-resident seller is tax resident of country (say, United States of America, United Kingdom etc.) where no relief / benefit under Double Taxation Avoidance Agreement (DTAA) is available in respect of taxation of capital gains. 2. Snapshot view of relevant provisions in brief : - As per section 48 of the Act, capital gains shall be computed as under : Particulars Amount (Rs.) Full value of consideration received or accruing as a result of transfer XXX Less: Expenditure incurred wholly and exclusively in connection with such transfer; (XXX) Less: the cost of acquisition of the asset and the cost of any improvement thereto; (XXX) Net Capital Gains XXX - It is pertinent to note that first proviso to section 48 of the Act read with Rule 115A of the Incometax Rules, 1962 (the Rules) provides foreign exchange fluctuation protection to the nonresident where foreign currency was initially utilised in the purchase of the shares or debentures. The said proviso, in nutshell, prescribes computation of capital gains in foreign currency so as to neutralize the effect of foreign exchange fluctuation. - Further, second proviso to section 48 provides for indexation benefit in respect of long-term capital gains arising from transfer of capital asset. However, second proviso to section 48 specifically excludes capital gain arising on transfer of shares or debentures which are covered under first proviso of section 48 from granting indexation benefit. 3. Availability of indexation benefit in respect of shares acquired by non-resident by utilising foreign currency : - In case of non-resident taxpayer, capital gains arising from transfer of capital asset being shares of Indian Company, bought in foreign currency, shall be computed as per first proviso to section 48 read with Rule 115A of the Rules. - The first proviso to section 48 read with Rule 115A provides that capital gains arising to the taxpayer on transfer of capital asset shall be computed by converting sales consideration into the same foreign currency as was initially utilized at the time of purchase. - While the proviso was introduced for protecting the taxpayer from exchange fluctuation gains (i.e., appreciation of foreign currency vis-à-vis Indian currency), the said proviso may also Off-market transfer of shares of listed company by non-resident to resident - Indexation dilemma and applicable tax rate on capital gains income CA. Dhinal A. Shah [email protected] CA. Hardik Khatri [email protected]

168 Ahmedabad Chartered Accountant Journal June, 2023 operate in a scenario where there is devaluation of foreign currency. Further, in certain cases, it may so arise that choosing for indexation benefit may be more beneficial for the taxpayer instead of resorting to first proviso (since there may not be much fluctuation in foreign currency while there may be increase in inherent value of shares). - In view of the above, it may not be correct to conclude that benefits under the first proviso and the second proviso to section 48 are identical or serve the same purpose. - Accordingly, in such circumstances,evaluation may be required as to whether : a. taxpayer has, at all, an option to opt for first proviso (i.e., foreign exchange fluctuation) or second proviso (indexation benefit); or b. the first proviso to section 48 is mandatory if the conditions prescribed therein are satisfied / fulfilled. - One view of matter could be that first proviso is a beneficial provision which has been introduced to protect the interest of the taxpayer and hence, taxpayer may be able to opt out / may not take benefit of first proviso where the first proviso is not beneficial to the taxpayer. The other view of the matter could that the language as it stands today in the Act does not provide an option to the taxpayer and therefore, where the condition of first proviso to section 48 are fulfilled, the taxpayer has no option but to consider the first proviso to section 48 of the Act in computation of capital gains. - Strictly speaking, the way section 48 has been drafted, it may be reasonable to conclude that first proviso to section 48 is mandatory. Hence, the non-resident taxpayer covered by this proviso may not be eligible for indexation of cost (even if indexation is more beneficial to the taxpayer). - Having concluded that the first proviso to section 48 is mandatory, it is pertinent to evaluate the tax rate as may be applicable to the non-resident in respect of income earned from long-term Off-market transfer of shares of listed company by non-resident to resident - Indexation dilemma and applicable tax rate on capital gains income capital gains from off-market transfer of shares of listed company. - As per sub-clause (ii) of clause (c) of subsection (1) of section 112, capital gains income earned by non-resident shall be chargeable at the rate of 20% (plus applicable surcharge and cess). However, proviso to section 112(1) provides for tax rate of 10% if benefit of indexation is not availed. - Considering that the non-resident seller is not availing indexation benefit (even though it avails benefit of first proviso), the non-resident seller may be liable to tax at the rate of 10% (plus applicable surcharge and cess). Reference, in this regard may be made to the landmark judgment of Hon’ble Delhi High Court in the case of Cairn UK Holdings Ltd. (Writ Petition (Civil) No. 6752 of 2012) wherein it has been held that capital gains that arising to non-resident seller on sale of equity shares of Indian company to another foreign company is liable to tax deduction at lower rate of 10% even though benefit of first proviso has been availed by the taxpayer. The said judgment has been followed in number of courts and tribunal such as Delhi ITAT in the case of Mitsubishi Motors Corporation (IT Appeal No. 411 (Delhi) of 2014), Honda Motor Co. Ltd., In Re (A.A.R. NO 1200 OF 2011) and Mumbai ITAT in case of Abbott Capital India Ltd. (IT Appeal Nos. 5086 (Mum.) of 2009 and 7343 (Mum.) of 2010). - While income may be taxed in the hands of NR at the rate of 10% (plus surcharge and cess), for withholding purposes,”Part II” to “Schedule I”of Finance Act does not provide withholding rate for income chargeable to tax under section 112(1)(c)(ii). Accordingly, strictly speaking, “rates in force” for withholding purposes in respect of income chargeable under section 112(1)(c)(ii) may correspond to rate provided for “other longterm capital gains” i.e., 20% plus surcharge and cess (subject to treaty benefit which may need to be separately evaluated). ❉ ❉ ❉

Ahmedabad Chartered Accountant Journal June, 2023 169 Authorised Dealers Category-II - Online submission of Form A2 The Reserve Bank of India issued the following directions. With reference to paragraph 4 of A.P. (DIR Series) Circular No. 50 dated February 11, 2016 on ‘Compilation of R-Returns: Reporting under FETERS’ in terms of which AD banks, offering internet banking facilities to their customers were permitted to allow online submission of Form A2. It has now been decided to permit AD Category-II entities also to allow online submission of Form A2. AD Category-II entities shall frame appropriate guidelines with the approval of their Board within the ambit of extant statutory and regulatory framework. The terms and conditions mentioned in aforesaid A.P. (Dir Series) circular No. 50 dated February 11, 2016 shall continue to apply, as hitherto, to all Authorised Dealers. The relevant provisions of FEMA 1999, and ‘Master Direction – Know Your Customer (KYC) Direction, 2016’ as updated from time to time, issued by the Department of Regulation, RBI, have to be complied with by the ADs, for all transactions. Authorised Dealers may bring the contents of this circular to the notice of their constituents. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law. Source:RBI/2023-24/16A.P. (DIR Series) Circular No. 02, dated April 12, 2023 For full text refer:https://rbi.org.in/Scripts/ BS_CircularIndexDisplay.aspx?Id=12489 Remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS) The Reserve Bank of India issued the following directions in reference to A.P. (DIR Series) Circular No. 11 dated February 16, 2021, on “Remittances to International Financial Services Centres (IFSCs) in India under the Liberalised Remittance Scheme (LRS)” and Master Direction No. 7/2015-16 on Liberalised Remittance Scheme (LRS) as amended from time to time. On a review and with an objective to align the LRS for IFSCs set up under the International Financial Services Centres Authority Act, 2019 vis-à-vis other foreign jurisdictions, it has been decided to amend the directions under para 2 (ii) of the aforementioned A.P. (DIR Series) Circular dated February 16, 2021, as – “Resident Individuals may also open a Foreign Currency Account (FCA) in IFSCs, for making the above permissible investments under LRS.” Thus, the condition of repatriating any funds lying idle in the account for a period up to 15 days from the date of its receipt is withdrawn with immediate effect, which shall now be governed by the provisions of the scheme as contained in the aforesaid Master Direction on LRS. The Master Direction No. 7 is being updated to reflect these changes. AD Category - I banks should bring the contents of this circular to the notice of their constituents and customers. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law. Source: RBI/2023-24/21A.P. (DIR Series) Circular No.03, dated April 26, 2023 For full text refer:https://rbi.org.in/Scripts/ BS_CircularIndexDisplay.aspx?Id=12494 ❉ ❉ ❉ CA. Dr. Savan R. Godiawala [email protected] FEMA Updates 4 5

170 Ahmedabad Chartered Accountant Journal June, 2023 [I] Important Case Laws: (High Court) [1] Issue: High Court directs deptt. to reconsider belated appeal against cancelled registration on payment of outstanding dues by petitioner. Case Laws: SSN Associates v. Union of India [2023] 150 taxmann.com 159 (Gau). Facts: The Petitioner was dealing with the business of printing and executing works contract and supplies. Due to several personal problems due to Covid-19 Pandemic situation and lockdown throughout the entire country, the GST Returns from the month of July, 2020 to Jan. 2021 could not be submitted. The department issued notice for nonfiling of GST returns but it was remained unattended and the GST registration was cancelled for nonfiling of returns. It filed appeal but the appeal against cancellation order was dismissed on the ground of limitation. It filed writ petition before the High Court. Held: The Hon’ble High Court noted that the statutory dues are required to be paid by all entities who are registered under the GST regime. Such payments of statutory dues contribute towards the revenue collection by the Union. If the Petitioner would not be included within the GST regime, then any statutory dues that may be required to de deposited by the petitioner will not be deposited and non-payment of tax will not be in interest of revenue. The Court also noted that the Petitioner had approached authority for appeal and same was dismissed on ground of limitation but the Writ Court is empowered to condone the delay of any statutory or quasi-judicial authority. Therefore, the impugned orders were to be set aside and authority was directed to intimate outstanding dues to the petitioner and on payment of such dues, appellate authority would re-decide appeal. [2] Issue: Non-speaking order of cancellation of registration is liable to be set aside; HC remanded matter to Adjudicating Authority. Case Laws: Precitech Engineers v. State of U.P. [2023) 150 taxmann.com 214 (All.) Facts: The Petitioner received a show cause notice proposing cancellation of registration from the department wherein the petitioner was called within a period of seven working days to submit a report and to appear for personal hearing. It didn’t reply and registration was cancelled. It filed appeal against the cancellation order and contended that order was non-speaking but the appeal was rejected on the ground that the same was filed beyond the prescribed period of limitation. Therefore, the petitioner filed writ petition seeking restoration of registration and challenged the impugned order. Held: The Hon’ble High Court noted that the impugned order of cancellation of registration was completely non-speaking order and prima facie without application of mind. Moreover, the notice issued by the department for cancellation of registration didn’t provide time or any specific date for GST and VAT Judgments and Updates CA. Vishrut R. Shah [email protected] CA. Bihari B. Shah [email protected]

Ahmedabad Chartered Accountant Journal June, 2023 171 GST and VAT - Judgements and Updates personal hearing. Therefore, the Court held that the impugned order was liable to be set aside and matter was remanded to the adjudicating authority for passing a fresh order, in accordance with law, after giving opportunity of hearing to the petitioner. [3] Issue: GST registration can’t be cancelled retrospectively if SCN didn’t propose to cancel with retrospective effect: HC: Case Laws: Aditya Polymers v. Commissioner of Delhi Goods & Service Tax [2023] 150 taxmann.com 223 (Delhi) Facts: The Petitioner was carrying on the business as the sole Proprietor of Aditya Polymers, The department issued a show cause notice calling upon the petitioner to show cause why her GST registration not be cancelled for the reason that she had not filed her returns for a continuous period of six months. The petitioner did not respond to the said show cause notice and consequently, the petitioner’s GST registration was cancelled with effect from the date on which it was granted i.e. 01.07.2017. It filed appeal against the cancellation order but the same was rejected as time barred. It filed a writ petition and challenged the cancellation of registration with retrospective effect. Held: The Hon’ble High Court noted that the show cause notice issued to the petitioner didn’t mention that proper officer proposed to cancel registration with retrospective effect. As per section 29(2) of the CGST Act, the proper officer is empowered to cancel the registration from any such date as he may deem fit including from any retrospective date. However, selecting a date from which to cancel the registration cannot be arbitrary. In the instant case, the petitioner had no opportunity to address any proposed action of cancellation of registration ab initio. However, the petitioner submitted that she had no objection if the order cancelling the GST registration is sustained albeit with effect from date of notice i.e. 11.12.2020. Therefore, it was held that the cancellation of the petitioner’s GST registration would take effect from 11.12.2020 and not from 01.07.2017. [4] Issue: Rejection of refund without providing hearing opportunity is in violation of principles of natural justice: HC: Case Laws: DL Support Services India (P) Ltd. v. Additional Commissioner CGST Appeals II [2023] 149 taxmann.com 324 (Delhi) Facts: The Petitioner was involved in export of services and sought a refund of tax paid on export of services. The application was accepted but later on Adjudicating Authority denied refund on ground that petitioner-assessee and service-recipient(s) were not distinct persons. It filed appeal against the rejection of refund and Appellate Authority proceeded to deny refund on an absolutely new ground that petitioner was an intermediary under section 2(13) of Integrated Goods & Services Tax Act, 2017. It filed writ petition and contended that refund was rejected without any notice or opportunity of hearing and it was not open for the Appellate Authority to suo motu set up a new case. Held: The Hon’ble High Court noted that the petitioner was not given an opportunity to meet case when it was held that it was not entitled to refund being an intermediary. Therefore, the impugned order was passed in violation of principles of natural justice. The Court also held that the matter to be remanded to Appellate Authority to decide petitioner’s appeal afresh, including question as to whether Appellate Authority has jurisdiction to set up a new case against petitioner, which was not a subject matter of either show cause notice or enquiry before Adjudicating Authority.

172 Ahmedabad Chartered Accountant Journal June, 2023 [5] Issue: Ex parte order passed without affording sufficient opportunity of hearing is not sustainable: HC: Case Law: Himanshu Traders v. Union of India [2023] 149 taxmann.com 267 (Patna) Facts: The Input tax credit claimed by the petitioner in GSTR-3B return was rejected in ex parte assessment order passed by the Adjudicating Authority. The tax and penalty was also imposed against the petitioner. It filed appeal against the order and contended that sufficient time was not afforded to the petitioner to represent his case but the same was rejected. Therefore, it filed writ petition before the High Court. Held: The Hon’ble High Court noted that the order passed was ex parte in nature which didn’t assign any sufficient reasons as to how the officer could determine the amount due and payable by the petitioner. Also, there was violation of principles of natural justice as sufficient time was not afforded to the petitioner to represent his case. Moreover, all issues of fact and law ought to have been dealt with, even if the proceedings were ex parte in nature but the authorities failed to adjudicate the matter on the attending facts and circumstances. Therefore, it was held that the impugned order was to be set aside and Adjudicating Authority was directed to decide case on merits after following principles of natural justice. ❉ ❉ ❉ GST and VAT - Judgements and Updates Continued from page 148 From the Courts Officer has been objective on the issue. It is not as if the entire amount claimed by the assessee as payment towards commission was disallowed. Of the sum of Rs. 53,49,790/- claimed, the Assessing Officer in fact allowed the payment of commission of Rs. 23,41,245/ - to two entities. Cancellation of Registration u/s 12AA of Public Charitable Trust: Shri Ram Janki Tapovan Mandir v/s. CIT(Exemption) 451 ITR 458 (Jharkhand) Issue: What is the condition precedent for cancellation of registration which has been granted after considering the genuineness of the institution? Held: We are in respectful agreement with aforesaid judgment of the Hon’ble Madras High Court and we declare that once registration has been granted under section 12AA after satisfying about the genuineness of the activities of the trust, the same cannot be cancelled on the basis of the same set of provisions of the trust. ❉ ❉ ❉ 30