Income Tax Act, 1961 - Section 147, 148, 143(2), 144 - The assessee, a Singapore tax resident, sold shares in its Indian subsidiary to another group entity, claiming exemption from capital gains tax under the India-Singapore Double Taxation Avoidance Agreement (DTAA). The sale was based on a valuation report prepared for RBI compliance. The Indian tax department reopened the assessment under Section 148, alleging underreporting of capital gains by Rs. 64.97 crore, citing discrepancies in valuation under Rule 11UA. The company challenged the reopening of assessment, citing lack of new tangible material and procedural irregularities, including alleged non-compliance with Section 151 approval requirements - Whether reopening of the assessment under Section 148 was justified in the absence of fresh tangible material or jurisdictional facts - Whether the tax department erred in relying on a valuation report prepared for RBI compliance without evidence of income escaping assessment - Whether procedural lapses, including lack of cooperation from the assessee, justify best judgment assessment under Section 144 - HELD - The Court held that reopening of the assessment was valid as there were sufficient reasons for the belief that income had escaped assessment. The tax department's reliance on discrepancies in the valuation report was deemed appropriate for initiating proceedings - The Court found that the valuation discrepancies raised a prima facie case for reassessment. However, it emphasized the importance of the petitioner cooperating in providing relevant documents and explanations to resolve the matter - The Court noted that the petitioner did not cooperate with the tax department by failing to provide the required information despite multiple opportunities. This justified the continuation of proceedings and potential invocation of best judgment assessment under Section 144 - The Court dismissed the contention regarding lack of approval under Section 151, holding that the department complied with procedural requirements - The writ petitions challenging the reopening of assessment and related notices were dismissed. The department was directed to complete the reassessment within three months, allowing the petitioner a final opportunity to submit objections and cooperate. The department was authorized to invoke Section 144 if the petitioner failed to cooperate. No costs were imposed
2024-VIL-245-MAD-DT
Neutral Citation: 2024:MHC:4181
IN THE HIGH COURT OF JUDICATURE AT MADRAS
W.P.Nos.3525, 3527 and 3528 of 2022
and
W.M.P.Nos.3662, 3663, 3664, 3665, 3666 and 3659 of 2022
Reserved On: 30.08.2024
Pronounced On: 19.12.2024
M/s SANMINA-SCI SYSTEMS SINGAPORE PTE. LIMITED
Vs
1. THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION 2(2), CHENNAI
2. THE ADDITIONAL COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION), RANGE-2, CHENNAI
For Petitioner: Mr. Nishant Thakkar, Ms. Jasmin Amalsadvala and Mr. R. Venkatanarayanan for M/s. Subbaraya Aiyar Padmanabhan Ramamani
For Respondents: Mr. B. Ramanakumar Senior Standing Counsel and Mr. Prabhu Mukund Arunkumar Junior Standing Counsel
CORAM
THE HONOURABLE MR. JUSTICE C.SARAVANAN
COMMON ORDER
By this Common Order, all the Writ Petitions are being disposed of.
2. In these Writ Petitions, the petitioner, a Singapore Company, has challenged the Impugned Notice issued under Section 148 of the Income Tax Act, 1961 on 31.03.2021 seeking to re-open the assessment, the Impugned Order dated 30.12.2021 disposing of the objections raised by the petitioner to re-open the assessment, Impugned Show Cause Notice issued under Section 142(1) of the Income Tax Act, 1961 and the Impugned Scrutiny Notice issued under Section 143(2) of the Income Tax Act, 1961 respectively as detailed below:-
|
W.P. No. |
Impugned Notice/ Show Cause Notice/ Communication No. |
Date |
Assessment Year |
|
3525 of 2022 |
DIN & Notice No. ITBA/AST/S/148/2020-21/1032069660(1) and DIN & Letter No. ITBA/AST/F/17/2021-22/1038260207(1) |
31.03.2021 |
2016-2017 |
|
3527 of 2022 |
DIN & Notice No. ITBA/AST/F/142(1)/2021-22/103859260(1) |
10.01.2022 |
2016-17 |
|
3528 of 2022 |
DIN No. ITBA/AST/F/143(2)-4/2021-22/1036928652(1) |
15.11.2021 |
2016-17 |
3. The dispute in the present case pertains to the Assessment Year 2016- 17 and the Financial Year 2015-16. The petitioner, a non-resident foreign company from Singapore held about 8,57,29,304 shares in an Indian Company, namely, M/s. Sanmina-SCI Technology India Private Limited (STIPL). It sold their shares to M/s. Sanmina-SCI India Private Limited (SIPL) also a group Company on 14.09.2015 for a total value of Rs.216,89,51,391 at Rs.25.30 per share.
4. A Return of Income was filed by the petitioner on 14.10.2016 under Section 139(1) of the Income Tax Act, 1961 declaring a gross receipt of Rs.131,16,58,351/- during the Assessment Year 2016-2017. This was based on the valuation by Ernst & Young Merchant Banking Services Private Limited determining the Fair Market Value of equity shares of M/s. Sanmina-SCI Technology India Private Limited (STIPL).
5. The petitioner had claimed that the capital gains arising from the sale of the shares in M/s. Sanmina-SCI Technology India Private Limited (STIPL) to M/s. Sanmina-SCI India Private Limited (SIPL) was exempt from tax in terms of the India-Singapore Double Taxation Avoidance Agreement (ISDTAA), as such income was taxable only in Singapore.
6. The said M/s. Sanmina-SCI India Private Limited (SIPL) which purchased the shares from the petitioner did not deduct tax at source and therefore, the parallel proceedings were initiated against M/s. Sanmina-SCI India Private Limited (SIPL) under Section 201 of the Income Tax Act, 1961.
7. It is the case of the petitioner that the aforesaid proceedings initiated against M/s. Sanmina-SCI India Private Limited (SIPL) were eventually dropped for the alleged failure to deduct tax while paying such consideration to the petitioner.
8. Counter-affidavit has been filed by the Department, it has been confirmed that the proceedings that were initiated against the purchasing company has been dropped. Para 4 of the counter-affidavit has been stated as follows: -
“4. Without prejudice to the above contentions and before adverting to the averments of the petitioner, the petitioner herein, namely M/s. Sanmina-SCI Systems Singapore Pte Limited is a company incorporated in Singapore and a tax resident of singapore. Its Permanent Account No. AAQCS55868C and assessed to income tax within the jurisdiction of the Assistant/Deputy Commissioner of Income Tax (International Taxation) Circle 2(2), Chennai. During the Financial Year 2015-16 relevant to the Assessment Year 2016-2017, the petitioner had sold 8,57,29,304 shares in Sanmina-SCI Technology India Private Limited to Sanmina-SCI India Private Limited at the rate of Rs.25.30 per share. On the Capital Gains arising thereon as per Income Tax Act, 1961, the petitioner was under the assumption that the Singapore resident-Petitioner was eligible to avail the benefit of Double Taxation Avoidance Agreement entered into between India and Singapore, as the DTAA provides that the income would be taxable only in Singapore. The petitioner filed its return of income on 14.10.2016 for the said AY admitting NIL income and disclosing an income of Rs.131,16,58,351 as exempt from taxation. The Assessing Officer issued a Notice under Section 201 of the Act to Sanmina-SCI India Private Limited the company which purchased the share as there was failure on its part to deduct tax at source for the consideration paid by it to the petitioner for acquisition of shares of Sanmina-SCI Technology India Private Limited and after analyzing prima facie the chargeability to tax of such Capital Gains and the submissions of M/s. Sanmina-SCI India Private Limited, the AO had closed the proceedings.”
9. It is further submitted that during the course of assessment proceedings of M/s. Sanmina-SCI India Private Limited (SIPL), the transaction was also scrutinized by the Transfer Pricing Study (TPS), who submitted the same to the Office of the Assistant/Deputy Commissioner of Income Tax, Transfer Pricing Officer Circle-3(1), as a part of its submission dated 07.01.2019. No adjustment with receipt to the same was proposed in this regard by the Transfer Pricing Officer (TPO).
10. The return that was filed on 14.10.2016 was sought to be re-looked by the respondents Department vide a Impugned Notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, 1961, which is now subject matter of W.P.No.3525 of 2022.
11. The reasons for reopening the assessment communicated by the respondents Department on 15.11.2021 under Section 143(2) of the Income Tax Act, 1961 which is impugned in W.P.No.3528 of 2022.
12. The reasons for reopening the assessment stated in Impugned Communication/Impugned Scrutiny Notice dated 15.11.2021, are captured below: -
“Sub: Intimation on change of incumbent-under Section 129 of the IT Act, 1961-Notice u/s.148 dated 31.03.2021 – Communication of Reasons for re-opening of Assessment for A.Y. 2016-17 – reg.
Sir/Madam,
It is informed that I am the present DCIT (International Taxation)-2(2), Chennai and as required u/s 129 of the Income Tax Act, a fresh opportunity of hearing is accorded to you subsequent to the above notice. Consequent to the return filed for the above AY, the reasons for re-opening of assessment are communicated to you as under:
“the remitter claims to have not deducted TDS, relying on th only criteria that since the Assessee is a tax resident of Singapore and as per India Singapore DTAA, capital gains arising is only taxable in Singapore.”
Firstly the same is true only if the conditions as set forth in the limitations of benefit clause are satisfied. However, the remitter has failed to furnish any evidence in support of the same.
Secondly in the valuation relied on by the remitter for fair market valuation of the shares from EY. It is seen as under
“... EY has been engaged to perform fair market valuation of equity shares of STIPL (Sanmina Technology India Private Limited) has been engaged to perform fair valuation of equity shares of STIPL for internal management analysis an also for filing the valuation report with RBI/Authorized Dealers.”
And the scope of work is mentioned as under:
“The scope of our services is to perform the valuation of equity shares of STIPL as at 31 March 2015 as per internationally accepted methodology based on its Balance Sheet as at 31 March 2015 for the purpose of Internal Management Analysis of STIPL and for filing the Valuation Report with Reserve Bank of India.”
In the beginning also, the report mentions reliance restricted
Therefore, it is clear that the above valuation is only for the purpose of the RBI and not for the Income Tax or its suitability and applicability for any other purpose such as for working out the capital gains liability of the remittee (recipient).
The valuer has also not independently verified the valuation and relied solely on the documentation provided by the remitter.
Therefore when the valuation is carried by the undersigned the same is worked out as per Rule 11UA NAV method as under
[100100] Balance Sheet
Unless otherwise specified, all monetary values are in INR
|
|
31/03/2015 |
31/03/2014 |
31/03/2013 |
|
Balance Sheet (Abstract) |
|
|
|
|
Equity and Liabilities (Abstract) |
|
|
|
|
Shareholders' funds (Abstract) |
|
|
|
|
Share Capital |
127,65,72,300 |
127,65,72,300 |
153,25,22,070 |
|
Reserves and surplus |
258,10,42,300 |
256,93,00,903 |
|
|
Total shareholders' funds |
385,76,14,600 |
384,58,73,203 |
|
Total number of shares is as under: -
Disclosure of shareholding more than five percent in Company [Table]
Unless otherwise specified, all monetary values are in INR
|
Classes of share capital (Axis) |
Equity shares 1 (Member) |
|
|
Name of shareholder (Axis) |
Shareholder 1 (Member) |
|
|
|
01/04/2014 to 31/03/2015 |
01/04/2013 to 31/03/2014 |
|
Disclosure of shareholding more than five per cent in company (Abstract) |
|
|
|
Disclosure of shareholding more than five per cent in company (Line Items) |
|
|
|
Type of share |
Equity Shares |
Equity Shares |
|
Name of shareholder |
Sanmina-SCI Systems Singapore Pvt. Ltd. |
Sanmina-SCI Systems Singapore Pvt. Ltd. |
|
PAN of shareholder |
AAQCS5586C |
AAQCS5586C |
|
Country of incorporation of residence of shareholder |
SINGAPORE |
SINGAPORE |
|
Number of shares held in company |
(shares) 12,72,49,024 |
(shares) 12,72,49,024 |
|
Percentage of shareholding in company |
1.00 |
1.00 |
The value of each share is calculated as under:
|
Fair value of each share = Rs.258,10,42,300 / 1276,57,230 shares |
|
|
|
= Rs.20.21 Per Share |
|
Rate at which each share was purchased as part of buyback |
|
|
|
= Rs.25.30 Per share |
Therefore, the difference at which the shares were bought over and above the fair market value is Rs.64,97,75,300/-.
Hence, there is reason to believe that the above consideration received by the assessee towards buyback of the shares also comprises of Long Term Capital Gain. The surplus portion which is consideration over and above the fair market valuation of the shares is to be taxed in the hands of the assessee. Therefore, on account of the above, I have reason to believe that income of Rs.64,97,75,300/- has escaped assessment within the meaning of Section 147 and the assessee has failed to fully and truly disclose all material facts for the correct assessment of income for AY 2016-17.
“The assessee has filed the return of income for AY 2016- 17 on 14.10.2016 but has shown the amount of Rs.131,16,58,351/- as long term capital gains and claimed exemption from tax as per India Singapore DTAA. However, as detailed above there is sufficient reason to believe that the remittance also contains excess amount paid over and above the fair market value of shares.”
In this regard an opportunity of being heard is accorded to furnish your objections, if any, as laid down in the case of GKN Driveshafts (India) Ltd. Vs. ITO, (2003) 259 ITR 19 (SC), latest by 22.11.2021. Your objections may please be forwarded to the email id:chennai.dcit.it2.2@incometax.gov.in (word format). Please note that if the objections are not received on or before the said date, it will be construed that you have no objections to offer and necessary action will be taken accordingly.”
13. The petitioner has replied and pursuant to which, the Impugned Show Cause Notice dated 10.01.2022 under Section 142(1) of the Income Tax Act, 1961 has been issued which is impugned in W.P.No.3527 of 2022.
14. A Speaking Order dated 30.12.2021 was also passed in line with the decision of the Hon'ble Supreme Court in G.K.N.Driveshafts (India) Ltd. Vs. Income Tax Officer and Others, (2003) 259 ITR 19 (SC) (2003) 1 SCC 72, disposing of the objection of the petitioner. Pursuant to the Speaking Order dated 30.12.2021, the Impugned Show Cause Notice dated 10.01.2022 has been issued to the petitioner which has been impugned in W.P.No.3527 of 2022 as mentioned above.
15. The Impugned Show Cause Notice dated 10.01.2022 merely calls upon the petitioner to furnish the following documents:-
i. Unique Tax Identification Number allotted by the Tax Authority issuing Tax Residency Certificate.
ii. The details of the Chairperson along with his/her Name, Designation, Address, Contact Number and Email ID.
iii. Power of Authorisation for filing the replies on behalf of the assessee-company.
iv. A brief note about the nature of business activity carried out by the petitioner during the year under consideration.
v. Statement of computation of income for the relevant Assessment Year.
vi. Details of remittances received on share transactions (buy back) during the relevant Assessment Year along with all supporting documents, copy of agreements, Ledger copies, and also explain the specific nature of supply or services rendered, etc.
vii. Copies of Profit & Loss Account and Balance Sheet for the years FY 2012-13, 2013-14, 2014-15 and 2015-16.
viii. Copy of the Bank Account evidencing the receipt of the remittances received during the year.
ix. Clarification/explanation for claiming such income received from Indian entities as not taxable.
x. Other evidences/explanations in support of the petitioner's return of income.
16. The petitioner has also replied to the same vide reply dated 25.01.2022 seeking for further time. The respondents Department has informed the petitioner by its Communication dated 27.01.2022 that additional time was granted till 3.00 p.m on 04.02.2022 as the time for completing the assessment would be getting barred by limitation on 31.03.2022.
17. The petitioner has also replied on 04.02.2022 stating that the petitioner Company was still in the process of deliberating on the way forward and prays for additional time of one week. Thereafter, a Show Cause Notice was also been issued on 04.02.2022 to the petitioner to show cause as to why the assessment should not be completed for the material period based on the available record if the petitioner fails to submit the required information by 08.02.2022.
18. The petitioner further sought for additional time by its Representation dated 08.02.2022 and has thereafter proceeded to file the present writ petitions on 10.02.2022 raising grounds.
19. The case of the petitioner is that there were no jurisdictional fact that are available for reopening the assessment, as is evident from the reasons furnished by the respondents for re-opening the assessment in the annexure attached to their response dated 15.11.2021. It is submitted that the shares of the purchasing company namely Sanmina-SCI India Private Limited has been valued to arrive at a incorrect conclusion for income assessment by invoking Rule 11UA of the Income Tax Rules, 1962 under the Net Assessment Valuation (NAV) method. It is submitted that if at all such an exercise is to be carried out, at best the shares of the company, two shares were sold by the petitioner namely Sanmina-SCI Technology India Private Limited (STIPL) ought to have been valued and therefore in absence of the jurisdictional fact that are available, the proceedings initiated vide Impugned Notice dated 31.03.2021 and the consequential order passed on 30.12.2021 overruling the objections of the petitioner is liable to be quashed.
20. The reasons that forthcoming in the affidavit filed in support of the present writ petitions are that there are no fresh and tangible materials that have come in possession of the respondents Department for issuance of the Impugned Notice dated 31.03.2021 under Section 148 of the Income Tax Act, 1961 impugned in W.P.No.3525 of 2022.
21. In this connection, a reference is made to the decision of this Court in Asianet Stat Communications Private Limited Vs. ACIT in W.P.No.24842 of 2019 and in Mobis India Limited Vs. DCIT, 421 ITR 463. It is further submitted that reopening of the assessment is on the basis of a change of opinion since there were no adverse inference in TDS/Sec.201 proceedings initiated against the petitioner.
22. The learned counsel for the petitioner has also stated that there are no other materials that are available to conclude there was any inaducive part of the petitioner to provide information for completing the assessment. It is further submitted that a conclusion for buy back of shares cannot be countenanced. In any event, it would be exempt from tax in terms of Section 10(34A) of the Income Tax Act, 1961.
23. The learned counsel for the petitioner would contend that infact there was no material or information which prompted the respondents Department to take the case of the petitioner for reassessment and such reassessment cannot be initiated based on mere change of opinion. He would also contend that if at all there was buy back of shares undertaken by the purchaser M/s.Sanmina-SCI India Private Limited (SIPL) pursuant to which, an amount over and above the Fair Market Value (FMV) was paid to the petitioner.
24. It is submitted that the obligation if any was only on M/s.Sanmina- SCI India Private Limited (SIPL) and not the petitioner as it would be exempted under Section 10(34A) of the Income Tax Act, 1961. He would also contend that the Impugned Scrutiny Notice dated 15.11.2021 issued under Section 143(2) of the Income Tax Act, 1961, cannot be sustained since it has been issued without consideration of the objections raised by the petitioner.
25. Finally, the learned counsel for the petitioner has also submitted that no approval, as is contemplated under Section 151 of the Income Tax Act, 1961 has been obtained and therefore on this count also the impugned proceedings are liable to be dropped. In support of the case, the petitioner has placed the following decisions: -
(i) Cognizant Technology Solutions Pvt Ltd Vs. Deputy Commissioner of Income Tax in W.P.No.32752 of 2017;
(ii) Mohanlal Champalal Jain Vs. Income Tax Officer, Ward 1(2), Thane reported in 2019 102 taxmann.com 293 (Bombay);
(iii) Income Tax Officer, Ward 1(2) Vs. Mohanlal Charmpalal Jain reported in 2019 11 taxmann.com 67 (SC);
(iv) Akshar Builders & Developers Vs. Assistant Commissioner of Income Tax – 28(1), Mumbai reported in 2019 103 taxmann.com 162 (Bombay) and
(v) Ankita A. Choksey Vs. Income Tax Officer – 19 (1) (1) & Others in W.P.No.3344 of 2018.
26. Arguing the case on behalf of the respondents, the learned Senior Standing Counsel for the respondents would submit that these Writ Petitions are devoid of merits and therefore these Writ Petitions are liable to be dismissed.
27. The learned counsel for the respondent would submit that transactions which are exempted from payment of tax involving cross border transactions have to be examined as there can be a case for income escaping assessment under the provisions of the Income Tax Act, 1961. It is further submitted that only an intimation was made and the assessment was completed only under 143(1) and therefore it cannot be stated that there is no change of opinion.
28. It is submitted that for reopening of the assessment for the purpose of under Section 147 of the Income Tax Act, 1961 was subsequent to the approval of the proposal by the Additional Commissioner of Income Tax, Chennai pursuant to which the Impugned Notice dated 31.03.2021 was issued under Section 148 of the Income Tax Act, 1961.
29. That apart, the learned counsel for the respondent has placed reliance on Explanation made under Section 147 of the Income Tax Act, 1961 as it stood prior to 01.04.2021. It is submitted that mere furnishing of information is not sufficient and therefore on this count also no interference is warranted.
30. It is further submitted that the respondents Department had passed a Speaking Order on 30.12.2021 overruling the objections of the petitioner. Only thereafter Show Cause Notices have been issued. Therefore, it is submitted that it is not open for the petitioner to challenge the reopening of the assessment in these collateral proceedings after having not acquiesced into the Notice issued under Section 148 of the Income Tax Act, 1961 on 31.03.2021 and passing of the subsequent Order on 30.12.2021.
31. It is further submitted that the petitioner was issued with two notices dated 10.01.2022 and 27.01.2022 after the Impugned Order dated 30.12.2021 was passed. However, the petitioner has not co-operated with the respondents.
32. Finally, the learned counsel for the respondent would submit that in the light of dropping of the proceedings initiated against the company purchasing the shares which is the subsidiary of the petitioner, in all likelihood proceedings will be dropped. It is submitted that the writ petitions are premature and therefore liable to be dismissed.
33. I have considered the arguments advanced by the learned counsel for the petitioner and the learned Senior Standing Counsel for the respondents.
34. A reading of the reasons communicated vide Communication/Impugned Scrutiny Notice dated 15.11.2021 under Section 143(2) of the Income Tax Act, 1961 is impugned in W.P.No.3528 of 2022 makes it clear that there were sufficient reasons for reopening of the assessment under Section 148 read with Section 147 of the Income Tax Act, 1961 as it stood on 01.04.2021.
35. That apart, the petitioner has suffered Speaking Order dated 30.12.2021. Therefore, there is no justification in challenging the Impugned Notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, 1961 and the Impugned Communication/Impugned Scrutiny Notice dated 15.11.2021 giving reasons for reopening the assessment and the Impugned Show Cause Notice dated 10.01.2022.
36. That apart, the petitioner has not cooperated with the respondents Department by furnishing the required informations. Therefore, on this count also there is no basis on which, the Impugned Notices/Communications can be quashed.
37. In fact, the respondents Department are empowered to pass the Assessment Orders based on best judgment method under Section 144 of the Income Tax Act, 1961 in absence of proper informations by the petitioner to the above communications calling upon the petitioner to furnish the required informations/documents. 38. Under these circumstances, these Writ Petitions are liable to be dismissed and are accordingly dismissed.
39. The respondents are directed to complete the assessment preferably, within a period of 3 months from the date of receipt of a copy of this order or such other extended period that may be required subject to the petitioner filing its reply objections, if any, to the Show Cause Notice dated 04.02.2022.
40. It is made clear that in case the petitioner fails to cooperate with the respondents Department, the respondents Department are at liberty to finalize the assessment by invoking Section 144 of the Income Tax Act, 1961. No costs. Connected Writ Miscellaneous Petitions are closed.
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