- Block period 1-4-1989 to 16-2-2000 - During search carried out in case of assessee’s husband on 16-2-2000, a pronote for Rs. 1,20,000 was found - Locker in assessee’s name was also searched but no incriminating material was found - On 20-6-2000, assessee filed return for assessment year 2000-01, surrendering a sum of Rs. 1,00,000 - Thereafter, in response to notice issued under section 158BC, assessee filed nil return for block period - However, Assessing Officer brought to tax amount of Rs. 1,20,000 as undisclosed income for block period - Commissioner (Appeals) reduced addition to Rs. 1,00,000 - On second appeal, assessee, inter alia, contended that when no seizure was made in hands of assessee, order should have been passed under section 158BD and, therefore, order passed under section 158BC was bad in law - Whether since there was search of locker standing in name of assessee, order passed under section 158BC was justified on ground that two orders for same block period one under section 158BD and other under section 158BC cannot be passed - Held, yes - Whether where no books of account are maintained and assessee has paid tax, if any, by way of TDS or advance tax, only that income, which is above chargeable limit and in respect of which no tax has been paid by way of advance tax or TDS, will be liable to tax as undisclosed income for block period under section 158BB - Held, yes - Whether since in instant case no exercise was carried out in that regard by Assessing Officer as well as Commissioner (Appeals), issue was to be restored to file of Assessing Officer - Held, yes - Smt. Renu Agarwal v. Asstt. CIT (Agra)

Undisclosed income, computation of

- Block period 1-4-1996 to 4-9-2002 - Whether once an undisclosed income has been computed by Assessing Officer, it is presumed that it is aggregate of total income of previous years falling within block period, unless it is demonstrated that it is not so - Held, yes - Whether where entries are made in regular books of account in normal course of business, income computed on basis of such entries cannot form part of undisclosed income and in clause (ca) of section 158BB(1) only those cases may come, where an assessee does not maintain regular books of account for a relevant previous year - Held, yes - Whether where income as per return for assessment year 2002-03, even though it was filed belatedly, was entered into regular books of account kept in normal course of business, clause (ca) of section 158BB(1) would not be applicable and said income could not be included in block assessment - Held, yes - Umang Agarwal v. Asstt. CIT (All.)

Capital gains

Chargeable as

- Assessment year 1994-95 - Whether during subsistence of partnership firm, partners have no defined share in assets of partnership, but have only an interest in property and, therefore, there is no relinquishment of any right in partnership property on reconstruction/retirement of a partner - Held, yes - Whether revaluation of assets by partnership firm and credit of revalued amount to capital accounts of partners in their respective sharing ratio entails transfer within meaning of section 2(47) - Held, no - Whether on introduction of new partners, there is realignment of sharing ratio between partners only to extent of sharing profit and loss of firm; on such realignment of profit sharing ratio, there is no relinquishment of any non-existent share in partnership assets as assets remained with firm; therefore, no capital gain arises on alignment of a part of profit sharing ratio, on introduction of new partners in firm - Held, yes - ITO v. Smt. Paru D. Dave (Mum.)

Circulars and instructions

- Instruction No. 3 of 2003, dated 20-5-2003

Income-tax Act, 1961

- Section 45

- Section 92C

- Section 158BB

- Section 158BC

Transfer pricing

Computation of Arm’s length price

- Assessment year 2004-05 - Whether reference to Transfer Pricing Officer (TPO) under Instruction No. 3/2003, dated 20-5-2003 is mandatory in nature and it is not right to contend that in not referring question of determination of Arm’s length price to TPO as required by Instruction No. 3/2003, Assessing Officer has merely committed a procedural error - Held, yes - Whether in determination of Arm’s Length Price, specific characteristics of transaction, of property transferred or services provided are required to be seen as a first step and, thereafter, functions performed, assets utilized or risk assumed (FAR) would have to be considered - Held, yes - Whether initial burden to prove that international transaction was carried out at arm’s length price is on taxpayer - Held, yes - Whether tested party should be party in respect of which reliable data for comparison is easily and readily available and fewest adjustments in computations are needed; it may be local or foreign entity - Held, yes - Whether it is also true that generally least of complex controlled taxpayer should be taken as a tested party, but where comparable or almost comparable, controlled and uncontrolled transactions or entities are available, it may not be right to eliminate them from consideration because they look to be complex; if taxpayer wishes to take foreign associated enterprise (AE) as a tested party, then it must ensure that it is such an entity for which relevant data for comparison is available in public domain or is furnished to tax administration - Held, yes - Whether taxpayer is not then entitled to take a stand that such data cannot be called for or insisted upon from taxpayer - Held, yes - Assessee/taxpayer was a multinational company carrying on business of manufacture and sale of pharmaceuticals - During relevant previous year it had undertaken international transactions with its overseas associated enterprises (AEs) by providing goods and services to them and charged price from its AEs in respect of goods and services at Arm’s Length Price (ALP), determined by applying Transactional Net Margin Method (TNMM) taking operating profit upon sales as profit level indicator - Assessing Officer accepted ALP as shown by assessee and completed assessment - Subsequently, Commissioner taking view that assessment made was erroneous insofar as it was prejudicial to interest of revenue initiated action under section 263 - In notice under section 263, Commissioner, inter alia, stated that (1) issue of determination of ALP was not referred to Transfer Pricing Officer as required by Instruction No. 3 of 2003, dated 20-5-2003 of CBDT; (2) Transactional Net Margin Method (TNMM) was used by assessee taking Operating Profit upon Sales as Profit Level Indicator (PLI); for this purpose, assessee had taken overseas entities as ‘tested parties’ and their margins on mean basis and compared same with mean of identified comparables; approach of assessee was not in consonance with rule 10B(2) and rule 10B(3), considering diverse conditions in which AEs were operating; hence, treating tested parties to be AEs of assessee bunched in a group did not go well with law and spirit of Transfer Pricing legislation in force in India; and thus, method of determining of ALP employed by assessee did not appear to be correct; and (3) overseas AEs, instead of taxpayer were wrongly taken as a tested party when reliable data for comparison in respect of taxpayer was available in India; there were several other pharmaceutical companies engaged in a similar business and undertaking similar transactions - Whether in view of facts, namely,

(1) even though there was good and reliable evidence for taking assessee as a tested party for comparison with Indian companies, foreign companies with different market conditions and economic realties were taken for comparison to apply transfer pricing regulations;

(2) assessee in audit report filed along with return did not give details and specific characteristics of transactions, of property transferred or services provided except for giving amount of transactions merely mentioning that pharmaceuticals were sold either in shape of dosages, etc., and Assessing Officer did not bother that basic and fundamental information, i.e., specific characteristics of transaction, to consider application of transfer pricing formulation was not available in instant case;

(3) no detail whatsoever of overseas comparable companies taken into account was given in audit report and there was no evidence that FAR analysis was carried out;

(4) claim of taxpayer for aggregation of all AEs as tested parties in taking their margin of profit for comparison with some American companies and six other companies with location not disclosed was very difficult to understand;

(5) without examination of cogent material, claim of taxpayer that uncontrolled transactions were not comparable was wrongly accepted by Assessing Officer;

(6) taxpayer failed to give specific details of International transactions carried out with 17 AEs although required to be given as per US Transfer Pricing Regulations; and

(7) uncontrolled transaction carried out by taxpayer were available but not considered as comparable because with related AEs additional risks were undertaken by taxpayer;

it could be said that there was patent lack of application of mind by Assessing Officer to requirement of transfer pricing regulations and, therefore, Commissioner was justified in invoking section 263 - Held, yes - Ranbaxy Laboratories Ltd.v. Addl. CIT (Delhi)

Wealth-tax

Wealth escaping assessment

Non-disclosure of primary facts

- Assessment years 1989-90 to 1991-92 - On dissolution of a firm, in which assessee was a partner, property in question, i.e., 40.84 cents of land, devolved upon assessee - In original assessment, valuation of said land with building appurtenant thereto was adopted by assessee as per Schedule III which was accepted by Assessing Officer by passing assessment order under section 16(3) - Subsequently, Assessing Officer noticed that said 40.84 cents of land included 10.580 cents of land with a building purchased by firm through a single document which was distinctly identifiable and, therefore, valuation of entire plot of 40 and odd cents and building as one unit under Schedule III resulted in escapement of net wealth - Accordingly, Assessing Officer reopened assessments and made additions to net wealth of assessee - Whether since assessment order under section 16(3) was passed after Assessing Officer had already examined issue of valuation of property in question and assessee had disclosed truly and fully all material facts which were necessary for Assessing Officer to complete his assessments, assessee was protected by proviso to section 17 and, therefore, reopening of assessment after four years could not be sustained - Held, yes - C.K. Govindankutty Nair v. WTO (Cochin)

Wealth-tax Act, 1957

- Section 17

INCOME-TAX TRIBUNAL DECISIONS