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The High Court of Delhi Sustained Tax Assessment, Dismissed Appellant’s Claims: Cites Reason as Assessments Deemed Valid After Review

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Case Title – Sunita Goel Vs. Deputy Commissioner of Income Tax Central, Circle 1, Delhi

Case Number – W.P. (C) 5132/2021

Dated on – 8th May, 2024

Quorum – Justice Yashwant Varma & Justice Purushaindra Kumar Kaurav

FACTS OF THE CASE
In the case of Sunita Goel Vs. Deputy Commissioner of Income Tax Central, Circle 1, Delhi, the Appellant, Sunita Goel, filed her Income Tax Return (ITR) on dated 7th of November, 2014, declaring a total income of INR 39,76,435 for the AY 2014-2015. On the 15th of December,2016, a search operation under Section 132 of the Income Tax Act was conducted at 157, Harsh Vihar, Pitampura, New Delhi, against Mr. Hemant Kumar Sharma, Director of M/s. Almina Textiles Pvt. Ltd. During the search, it was unveiled that Mr. Hemant Kumar Sharma had sold a property at 153, Harsh Vihar, Pitampura, new Delhi, to the Appellant for a total consideration of INR 26,170,000. Out of these, INR 99,50,000 was received vide cheque, and INR 1,62,20,000 was received in cash. An assessment order dated 30th of December,2018 was passed against Mr. Hemant Kumar Sharma, adding INR 1,62,20,000 as unexplained money under Section 69A of the Income Tax Act, 1961. Subsequently, the proceedings of the assessment were initiated against the petitioner under Section 153C of the Income Tax Act, 1961, and notices were served to her. The Appellant was provided with opportunities to respond to the notices and furnish with explanations regarding the cash transaction. Despite, being provided with multiple opportunities, the Appellant did not respond to the notices promptly. Eventually, the AO passed an order under Section 153C of the Income Tax Act, 1961, adding INR 1,62,20,000 to the total income of the Appellant for AY 2014-2015. Aggrieved by this order, the Appellant approached the High Court through a Writ Petition, primarily alleging a violation of principles of natural justice.

ISSUES
The main issue of the case whirled around whether the Assessment order passed against the Appellant under Section 153C of the Income Tax Act, 1961, adding INR 1,62,20,000 to her total income for the AY 2014-2015 valid?
Whether the AO complied with the principles of natural justice while passing the assessment order against the petitioner?
Whether the Appellant was provided with adequate opportunities to respond to the notices and furnish explanations concerning the cash transactions in questions?
Whether the initiation of the assessment proceedings against the Appellant under Section 153C of the Income Tax Act, 1961, was justified based on the material unearthed during the search operation conducted against Mr. Hemant Kumar Sharma?

LEGAL PROVISIONS
Section 69A of the Income Tax Act, 1961 prescribes the Unexplained money, etc.
Section 132 of the Income Tax Act, 1961 prescribes the Search and seizure
Section 142(1) of the Income Tax Act, 1961 prescribes the Inquiry before assessment
Section 143(2) of the Income Tax Act, 1961 prescribes the Definition of Assessment
Section 144 of the Income Tax Act, 1961 prescribes the Best Judgment Assessment
Section 153A of the Income Tax Act, 1961 prescribes the Assessment in case of search or requisition
Section 153C of the Income Tax Act, 1961 prescribes the Assessment of income of any other person

CONTENTIONS OF THE APPELLANTS
The Appellants, through their counsel, in the said case contented that the search and seizure operation conducted by the Income Tax Authorities against Mr. Hemant Kumar Sharma was invalid and illegal and that the Section 132 of the Income Tax Act, 1961were not complied with, either in terms of procedural requirements or substantive grounds, rendering the search operation null and void.
The Appellants, through their counsel, in the said case contented that there were jurisdictional issues regarding the authority of the AO to initiate the proceedings of the assessment against them under Section 153C of the Income Tax Act, 1961 and that there was no valid basis for extending the assessment to them, particularly if they were not directly connected to the person searched or if the seized assets were not linked to them.
The Appellants, through their counsel, in the said case contented that the assessment was made arbitrarily and without proper consideration of the evidence, resulting in an erred determination of their taxable income.

CONTENTIONS OF THE RESPONDENTS
The Respondents, through their counsel, in the said case contented that the search and seizure operation conducted against Mr. Hemant Kumar Sharma was valid and conducted in accordance with the provisions of Section 132 of the Income Tax Act, 1961.
The Respondents, through their counsel, in the said case contented that the AO had the jurisdiction to initiate the proceedings of assessment against the Appellants under Section 153C of the Income Tax Act, 1962.
The Respondents, through their counsel, in the said case contented that the principles of natural justice were fully complied with during the proceedings of the assessment and that the Appellants were given adequate opportunities to participate in the proceedings, submit their explanations, and present their case before the AO.
The Respondents, through their counsel, in the said case contented that the assessment was conducted on the basis of credible evidences and in accordance with the provisions of the Income Tax Act, 1961.

COURT ANALYSIS AND JUDGMENT
The court in the case of Sunita Goel Vs. Deputy Commissioner of Income Tax Central, Circle 1, Delhi, discovered that the Appellant was indeed provided with ample opportunities to present her case and that notices were issued, and the Appellant was given the chance to respond to each of them. Moreover, a satisfaction note, detailing the incriminating material, was provided to the Appellant, allowing her to understand the basis on which the assessment proceedings were initiated. The court observed that the assessing officer duly considered the responses of the Appellant before passing the impugned order. The court, concerning the assertion of delay, referred to relevant legal precedents, especially the decision in the case of Calcutta Knitwears, which stressed on the significance of the assessing whether any delay in the proceedings of the initiation were unreasonable. The court stated that a delay of 5 months, as in the present case, cannot be deemed unreasonable, specifically when it falls within a reasonable period from the date of closure of assessment of the searched person. The court concluded that the contentions of the Appellant lacked merit and that was no violation of the principles of natural justice, and the delay in the initiating proceedings was not reasonable. Thus, the impugned order adding INR 1,62,20,000 to the total income of the Appellant for AY 2014-2015 was upheld. The court in this case, dismissed the Writ Petition instituted by Sunita Goel challenging the order passed under Section 153C of the Income Tax Act, 1961. The court found no grounds to interfere with the assessment proceedings, as the Appellant was provided with ample opportunity to present her case and the delay in initiating proceedings was deemed reasonable.
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Judgement Reviewed by – Sruti Sikha Maharana
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Delhi High Court Nullifies Tax Assessments Due to Lack of Valid Transfer Order Citing Procedural Deficiencies: Emphasizes Importance of Proper Transfer Orders

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Case Title – Raj Sheela Growth Fund (P) LTD. Vs. Income Tax Officer, Ward-21(1), Delhi

Case Number – W.P. (C) 3777/2022 & CM APPL. 11224/2022

Dated on – 8th May, 2024

Quorum – Justice Yashwant Varma & Justice Purushaindra Kumar Kaurav

FACTS OF THE CASE
The case of Raj Sheela Growth Fund (P) LTD. Vs. Income Tax Officer, Ward-21(1), Delhi, revolves around the taxation matters concerning Raj Sheela Growth Fund (P) LTD., a private limited company which falls under the jurisdiction of the Income Tax Department. The office of the Central Circle-16, New Delhi, later renamed Central Circle-20, New Delhi, pursuant to an order of centralization dated 16th of July, 2008, had the jurisdiction over the case of the Appellant. For the Assessment Year (AY) 2015-2016, Raj Sheela Growth Fund, declaring a total amount of INR 7,920, filed its Income Tax Return (ITR). The case of the Appellant was picked up for inspection, and thereafter, a notice under Section 143(2) of the Income Tax Act, 1961, was issued by the office of the Income Tax Officer (ITO) Ward 21(1), New Delhi, on 21st of March, 2016. Furthermore, an assessment order was passed on the dated 31st of December, 2017, adding an amount of INR 1,35,11,59,300 to the total income of the Appellant under the Section 56(2) (viia) of the Income Tax Act, 1961. Being aggrieved by the assessment order, the Appellant instituted an appeal before the Commissioner of the Income Tax (Appeals)(CIT(A)), which was duly rejected. Subsequently, the Appellant appealed to the Income Tax Appellate Tribunal (ITAT), which partially allowed the appeal on the 9th of August, 2019 and handed over the matter back to the Assessing Officer (AO) to ascertain whether the transfer order under Section 127 of the Income Tax Act, 1961 was passed. On the dated 22nd of September, 2021, the Appellant instituted an application under Section 144A of the Income Tax Act, 1961, before the Assistant Commissioner of Income Tax (ACIT) inquiring regarding the transfer of the order under Section 127. Pursuant to this, an order was passed on dated 27th of September, 2021, confirming the transfer order and directing the AO to continue with the proceedings of the assessment. Thus, on the 30th of the September,2021, an assessment order was passed by the ITO Ward 21(1), New Delhi, making an addition under Section 56(2)(viia) of the Income Tax Act, 1961. The Appellant challenged the orders dated 31st of December,2017 and 30th of the September,2021, asserting lack of jurisdiction due to the absence of a valid transfer order under Section 127 of the Income Tax Act, 1961. The matter was brought before the Delhi High Court for the purpose of resolution.

ISSUES
The main issue of the case whirled around whether the assessment order passed by the ITO Ward 21(1), New Delhi, for the AY2015-2016 is valid?
Whether the AO lacked jurisdiction to assess the income of the Appellant due to the absence of a valid transfer order under Section 127 of the Income Tax Act, 1961?
Whether the Ao followed proper procedural requirements in issuing the assessment orders?
Whether all the relevant legal provisions were adhered to throughout the process of assessment?

LEGAL PROVISIONS
Section 64 of the Income Tax Act, 1961 prescribes the Income of individual to include income of spouse, minor child etc
Section 120 of the Income Tax Act, 1961 prescribes the Jurisdiction of income-tax authorities
Section 124 of the Income Tax Act, 1961 prescribes the Jurisdiction of assessing officer
Section 127 of the Income Tax Act, 1961 prescribes the Power to transfer cases
Section 143(2) of the Income Tax Act, 1961 prescribes that An incorrect claim, if such incorrect claim is apparent from any information in the return
Section 144A of the Income Tax Act, 1961 prescribes the Power of Joint Commissioner to issue directions in certain cases

CONTENTIONS OF THE APPELLANTS
The Appellants, through their counsel, in the said case contented that the AO lacked jurisdiction to assess their income for the AY2015-2016 due to the absence of a valid transfer order under Section 127 of the Income Tax Act, 1961 and that the AO did not have the authority to assess their income, as the case was not properly transferred to them.
The Appellants, through their counsel, in the said case contented regarding the validity of the assessment orders dated 31st of December,2017 as well as dated 30th of September,2021 that these orders are void ab initio since they were issued without jurisdiction and that any assessment made without proper jurisdiction is null and void in the eyes of law.
The Appellants, through their counsel, in the said case contented that it was a failure on the part of the assessing authority to follow the proper procedural requirements in issuing the assessment orders and that the AO did not adhere to the requisite legal provisions and failed to provide them with adequate opportunities to present their case or challenge the assessment.

CONTENTIONS OF THE RESPONDENTS
The Respondents, through their counsel, in the said case contented that AO had the proper jurisdiction to assess the income of the Appellant for the AY2015-2016.
The Respondents, through their counsel, in the said case contented that the assessment orders dated 31st of December,2017 as well as dated 30th of September,2021 were issued according to the provisions of the Income Tax Act, 1961 after due consideration of the relevant facts and evidences.
The Respondents, through their counsel, in the said case contented that the Ao followed all the requisite procedural requirements in issuing the assessment orders.

COURT ANALYSIS AND JUDGMENT
The court in the case of Raj Sheela Growth Fund (P) LTD. Vs. Income Tax Officer, Ward-21(1), Delhi, scrupulously reviewed the legislative framework laid down in Section 127 of the Income Tax Act, 1961, which governs the transfer of the cases between the Aos. The court stated the underlying principles of public interest and administrative convenience that guide such transfers. Stressing on these principles, the court illuminated the significance of ensuring that the transfer under Section 127 of the Income Tax Act, 1961, are executed in accordance with the law. The court considered various judicial precedents and stressed on the importance of the Section 127 of the Income Tax Act, 1961, in the context of the administrative efficiency and taxpayers’ rights. The court focused on the absence of a valid transfer order under Section 127 of the Income Tax Act, 1961 in the present case. The court observed that the case of the Appellants had been purportedly transferred to the ITO Ward 21(1), New Delhi, without the required transfer order mandated by the Income Tax Act, 1961. The court stated that such a transfer order is a prerequisite for any legal transfer under Section 127 of the Income Tax Act, 1961. The court, in this case, held that the impugned orders dated 31st of December,2017 as well as dated 30th of September,2021, which were issued without a valid transfer order under Section 127 of the Income Tax Act, 1961, were legally flawed and therefore set them aside. The court in the said case, allowed the petition of the Appellant.
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Delhi High Court Upholds Transfer Pricing Method Selection in Hellmann Worldwide Logistics Case

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Title: The Pr. Commissioner od Income Tax-4 vs. Ms. Hellmann Worldwide Logistic India Pvt. Ltd. ITA 1424/2018

Date of Decision: 04.10.2023

CORAM: Hon’ble Mr. Justice Rajiv Shakdher and Hon’ble Mr. Justice Girish Kathpalia

Introduction

The case of ITA 1424/2018 involves an appeal brought under Section 260A of the Income Tax Act, concerning the assessment proceedings for Assessment Year 2008-09. The revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) dated 29.08.2017. The dispute primarily revolved around the selection of the most appropriate method (MAM) for transfer pricing.

Facts of the Case

The respondent, M/S Hellmann Worldwide Logistics India Pvt. Ltd., is a private limited company engaged in various freight and logistics services.

The Assessing Officer initiated scrutiny assessment due to the company’s international transactions, which included charges for import and export freight services with its associated enterprises (AE).

The Transfer Pricing Officer (TPO) initially rejected the Comparable Uncontrolled Price (CUP) method used by the company as the most appropriate method.

The Dispute Resolution Panel (DRP) reduced the transfer pricing adjustment, but the revenue challenged the methodology used.

Court’s Analysis and Decision

The core issue revolved around the choice of the most appropriate transfer pricing method under Section 92C of the Income Tax Act.

The Revenue argued that the company and the Assessing Officer had not initially considered internal Transactional Net Margin Method (TNMM) as MAM and, therefore, the Tribunal had no authority to direct its application.

The Delhi High Court cited relevant precedents, including “Matrix Cellular” and “Dentsply India,” which affirmed that the choice of MAM could be different from that initially adopted if it was found to be more appropriate.

The Court upheld the Tribunal’s detailed reasoning in the impugned order, which established the need for an accurate arms length price for taxation. The Tribunal had directed the company to carry out internal Functional Assets & Risk (FAR) analysis, internal comparability, and, if necessary, provide external comparables under TNMM as MAM.

During the appeal’s pendency, the TPO eventually adopted external TNMM as MAM.

In conclusion, the Delhi High Court found no substantial question of law to answer and upheld the Tribunal’s reasoning, emphasizing that the ultimate aim of transfer pricing is to determine an accurate arm’s length price.

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Written by- Tarishi Verma

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