NRE account to be stamped as ‘Resident Account’ if NR is intending to stay in India for uncertain pe

CL : FERA - If NRI returns to stay in India for an 'uncertain period' he will become a person resident in India and his NRE account should be redesignated as Resident's account

Failure to deposit TDS on time will attract penalty

Failure to deposit timely and correct TDS or TCS will now attract a penalty ranging from Rs 200 to Rs one lakh by the Income Tax department.

All the Tax Deducted at Source (TDS) range offices of the department across the country have been asked by the Central Board of Direct Taxes (CBDT) to ensure compliance in this area and also inform and make aware the authorised deductors about this new action being initiated by the taxman.

According to the new instructions issued, a deductor, either government or private, will have to submit a "compulsory" fine of Rs 200 for delay in filing either TDS or Tax Collected at Source (TCS) every day beyond the stipulated date of remittance of these category of taxes.

Similarly, the penalty would be between Rs 10,000 to Rs one lakh for furnishing incorrect information or failure to file the collection statement within the due date.

"The assessing officer of the department will use sections 234E and 271H of the I-T Act to ensure that TDS or TCS collections are not delayed or faltered. The department, in many cases, has found that deductors delay for long the filing of these category of taxes even after deducting it from the salary of their employees," a senior official said.

The TDS regime has to be strengthend and hence such measures are important, the official said.

A big chunk of 41 per cent, in the total tax collections in the last fiscal, came from the TDS category alone.

During financial year 2012-13, Rs 2,30,188 crore tax was collected under the TDS category while the total direct taxes collections stood at 5,58,970 crore.

The department, during its recent deliberations with top I-T and CBDT officials here, has also decided to strengthen its regime for obtaining TDS from salaries of employees in order to collect more revenue under this category.

P Chidambaram unhappy with Pranab Mukherjee's Direct Tax Code bill

Finance minister P Chidambaram has expressed his disappointment with the present Direct Tax Code bill which he is scheduled to present in the monsoon session of Parliament as it substantially dilutes his original proposals. Chidambaram, however, said that he will do his best to integrate the original proposals as envisaged by him and the bill and also incorporate the proposals of the parliamentary panel. Speaking at the 32nd Skoch Summit in Mumbai, Chidambaram said that what he had envisaged in 2008 was a completely new Direct Tax Code in place of the 1961 Income Tax Act. However, in the wake of the 2008 Mumbai attacks, Chidambaram was made the home minister and a revised bill was tabled by his successor Pranab Mukherjee in Parliament in 2010. "I now have to present a bill in the monsoon session which does not reject the recommendations of the standing committee yet it must as far as possible incorporate the original philosophy of a new direct tax code," he said. "How do I reconcile the DTC 2008, the DTC 2010 and the recommendations of the standing committee? It is like the impossible trinity of the Reserve Bank of India," said Chidambaram, alluding to RBI's dilemma of meeting conflicting goals of rupee stability, free flow of capital and control over monetary policy. The bill tabled by Mukherjee was completely different from the draft finalized by Chidambaram. For instance, Chidambaram's draft sought 10% personal income tax on Rs 1.6 lakh to Rs 10 lakh annual income, 20% on Rs 10 lakh to Rs 25 lakh and 30% on all income above Rs 25 lakh. The present bill proposes 10% on income between Rs 2 lakh to Rs 5 lakh and 20% on income between Rs 5 lakh to Rs 10 lakh and 30% on income above Rs 10 lakh. The parliamentary standing committee, headed by Yeshwant Sinha, wanted the exemption limit to be raised to Rs 3 lakh. Speaking on the sidelines of the summit, the finance minister said that the government was ready with the food security bill, but no decision on it has been taken. Earlier in the day, Chidambaram said that he expected that the rupee would stabilize soon and find its level given that capital inflows from foreign investors have been strong. Stating that the fall in value would add to costs of imports, Chidambaram said that it was not a cause for alarm. Reiterating government measures to bring down gold imports, Chidambaram said that banks have been discouraged from selling gold coins and he hoped that gold imports would come down and investors will shift to financial instruments such as gold exchange traded funds. "All I can do is to plead to the people of India that they should not buy too much gold," he added.

Changes in Direct Taxes Code bill to be tabled in Monsoon Session: P Chidambaram

The government will introduce changes to the Direct Taxes Code (DTC) bill that would integrate its various versions, in the forthcoming Monsoon Session, Finance Minister P Chidambaram said here today.

"DTC 2010 was introduced as a Bill. I'm afraid much of the reform measures have been eliminated and gone back to the Income Tax Act. We are not introducing amendments to the Income Tax Act of 1961, we are writing a new DTC. The reference point cannot be IT Act of 1961," he told reporters on the sidelines of a function.

The draft of the DTC Bill, which was originally prepared by Chidambaram, underwent various modifications before it was introduced in the Lok Sabha by the then Finance Minister Pranab Mukherjee in 2010.

Chidambaram said he was facing a very peculiar problem of integrating the three different versions made over the past five years while trying to ensure that it remained progressive in character.

He further said that the Standing Committee on Finance, which had vetted the Bill, tried to take it closer to the 50-year-old Income Tax Act which the new law sought replace.

Answering questions on the Food Security Bill, the Minister said though the Bill was ready, no decision has been taken yet.

The ambitious food bill, touted to be a big vote-catcher for it in the next general elections, could not be taken up in the last session of Parliament as the Opposition completely stalled the proceedings of the Budget session.

No registration to a trust not functioning independently but as a tool of another entity

IT : Where assessee trust did not function independently but had been used as a tool of another organisation and paid licence fee to prohibited persons specified in section 13(3), registration could not be granted to it

Jewellery Stocks Fall After Hike In Import Duty Of Gold

6-Jun-2013

NEW DELHI: Shares in jewellery companies such as Tara Jewels, Goenka Diamonds, TBZ slipped 1-5 per cent in morning trade after the government increased import duty on gold by a third to 8 percent to control current account deficit.



The rise in import duty is likely to weigh on earnings outlook of these companies as well as margins, according to analysts. India is the world's biggest buyer of bullion and the government is seeking to halt a surge in demand.

Source:-articles.economictimes.indiatimes.com

Tolerable limit to fix ALP isn’t available if only one comparable is available for TP analysis

IT/ILT : Where there is only one comparable available in respect of international transactions entered into by assessee, it is possible to compute arm's length price on basis of even said comparable but, in such a case, assessee would not be entitled to benefit of 5 per cent range as mentioned in proviso to section 92C(2)

Ice Cotton Gains On Us Weekly Export Data, Weaker Us Dollar

NEW YORK: Cotton futures rose on Thursday and were on track for their first weekly gain in a month as buyers were encouraged by an increase in US weekly export sales and a weakening US dollar.



The most-active July cotton contract on ICE Futures US settled up 1.35 cents, or 1.6 percent, at 84.87 cents a lb.



The front-month contract's current trajectory would result in a weekly gain of about 7 percent, which would be its steepest since October.



Prices turned higher, reversing earlier losses, following the release of US Department of Agriculture weekly export data, which showed an uptick in both sales and shipments in the week ending May 30.



The tumbling US dollar added support, making dollar-traded commodities less expensive to holders of other currencies.



Dealers said they had expected an increase in US weekly exports as prices dropped nearly 80 cents in that period, which prompted mills to increase purchases.



The data "was strong, though not surprising at all. Mills have been buying like crazy," said Peter Egli, director of risk management for Plexus Cotton Ltd, a British-based medium-sized merchant.



Sales increased 80 percent from the prior 4-week average, as gains in Vietnam, China, Turkey, Taiwan and Indonesia offset cancellations by Morocco and El Salvador, the data showed.



China topped the list of shipment destinations, indicating continued strong demand from the world's largest textile market.



Dealers said that the country's reserve sales have also increased in recent days.



Beijing began a stockpiling program in 2011, paying above global prices to support farmers. The country is now expected to hold more than half of global inventories by the end of the crop year through July. News of overnight rains in drought-plagued west Texas, a key growing region in the world's top exporter, capped gains for the new crop.



ICE December cotton futures, which represent the new crop, edged up 0.49 cent, or 0.6 percent, to finish at 85.39 cents per lb.



The July/December spread narrowed to 0.52 cent from 1.38 cents during the previous session and 2.7 cents a lb last week.



Trading was heavy and featured rolling activity ahead of the July contract's expiration on July 9. Volume was double the 30-day average at 32,000 lots, preliminary Thomson Reuters data showed.



Exchange stocks rose to 523,476 bales on Wednesday, ICE data showed, the highest since June 2010.

Source:-www.brecorder.com

Rupee Up 15 Paise

The rupee on Friday recovered by 15 paise to 56.69 in early trade on Friday at the Interbank Foreign Exchange on dollar selling by exporters and some banks.



Besides, a weakening dollar against euro and yen in the global market ahead of the release of US employment data for May and the European Central Bank and the Bank of England both keeping monetary policy unchanged, also supported the rupee.



The rupee had lost 11 paise to close at 56.84 against the dollar after touching one-year lows of 57 in the previous session on sustained from importers and some banks amid volatile stock markets.

Source:-www.thehindu.com

U.S. Allows India, 8 Others To Resume Iranian Oil Imports

The United States on Thursday exempted India and eight other countries from having to adhere to its sanctions on importing oil from Iran, noting that these nations had significantly reduced their dependence on Iranian oil in the last six months.



U.S. Secretary of State John Kerry said India, China, Malaysia, Republic of Korea, Singapore, South Africa, Sri Lanka, Turkey, and Taiwan had qualified for being granted an exemption from rules under America’s Iran Sanctions Act, based on additional significant reductions in the volume of their crude oil purchases from the middle-eastern nation and for having reduced such purchases to zero and maintained it.



Reiterating the U.S.’s stand against the Iranian nuclear programme, Mr. Kerry said the international community stood shoulder to shoulder with the U.S. in maintaining pressure on Iran till it fully addressed prevailing concerns“Today’s determination is another example of the international community’s strong and steady commitment to convince Iran to meet its international obligations,” he said.

‘Satisfy concerns, or face isolation’



“This determination takes place against the backdrop of other recent actions the administration has taken to increase pressure on Iran, including the issuance of a new Executive Order on June 3. The message to the Iranian regime from the international community is clear: take concrete actions to satisfy the concerns of the international community, or face increasing isolation and pressure,” Mr. Kerry said on Wednesday.



Meanwhile, White House Press Secretary Jay Carney said there was sufficient supply of non-Iranian oil to permit foreign countries to significantly reduce their purchases of Iranian oil.



“In this context, it is notable that many purchasers of Iranian crude oil have reduced or ceased altogether their purchases from Iran,” he said.



However, he noted that global oil consumption had exceeded production in recent months.

Looser market



“The international response to concerns about Iran’s nuclear activities has increased demand for non-Iranian crude. However, rising production from other countries, greater spare production capacity, economic developments, and smaller inventory draws in March and April 2013 indicate a looser international crude market,” he said.



The Obama administration has introduced a series of measures over the past week to step up pressure on Iran over its nuclear programme, which Washington suspects is aimed at making weapons but Iran insists is for generating electricity and medical research.



Washington hopes the pressure will force Iran to come clean on its nuclear activity so that the U.S. and its allies can avoid any military intervention to prevent the Islamic republic from obtaining an atomic arsenal.



Despite plummeting sales overseas, Iran remains one of the world’s largest oil producers. Its exports bring in tens of billions of dollars in revenue for the country.

Source:-www.thehindu.com

Pacific Variety Helps Double Shrimp Exports

Exports of Vannamei variety of shrimps, farmed in Andhra Pradesh and Odisha, in value terms were $730 million during 2012-13 against $385 million in the previous year.



India exported a record 91,000 tonnes of Vannamei shrimps (40,787 tonnes during 2011-12), helping total seafood exports increase 5 per cent in quantity and 12 per cent in earnings.



Frozen shrimps, including other varieties, constitute 50 per cent of the value of total seafood exports, and India exported 1.89 lakh tonnes of the produce, earning Rs.8,175 crore.



Seafood export figures for the last financial year are yet to be officially released by Marine Products Export Development Authority (MPEDA). India exported 8.62 lakh tonnes of seafood worth Rs.16,597 crore, about $3.5 billion last financial year.



A leading seafood exporter here said that Vannamei, still an exotic variety in India and less than six years old in the country, had had a big impact on seafood business — for farmers and exporters.



Farmers had earned an average Rs.300 a kg of shrimp, MPEDA sources said here.



Vannamei shrimps, also called Pacific white shrimp and native to the eastern Pacific Ocean, emerged on the scene with a bang with high productivity.



Export figures have been impressive since 2010-11 when India exported 12,407 tonnes.



The steep rise in production has been supported by remarkable increase in acreage under Vannamei farming. MPEDA accounts put the total area under Vannamei farming at 22,715 hectares. But seafood exporters, some of whom are themselves involved in aquaculture, estimate that there may at least be 50,000 hectares under farming.



The economics of Vannamei farming worked in favour of the farmers, who were now abandoning traditional black tiger shrimp farming, said a seafood exporter.



Vannamei productivity is about 10 tonnes a hectare. The first year of Vannamei farming involves an investment of about Rs.16 lakh a hectare. Earnings in six months can be as much as Rs.25 lakh at an average price of Rs.250 a kg. The next cycle involves an investment of about Rs.12 lakh, including the Rs.10 lakh that go into the feed. As a result, farmers are even encroaching on forest and government lands for farming Vannamei though these farms cannot be put on paper and registered or officially shown as producing shrimp.

Source:-www.thehindu.com

India's Oilmeal Exports Plunge 34% In April - May Period

6-Jun-2013

India’s oilmeal exports fell by a staggering 34% in the first two months of the current financial year in reduced availability of the animal feed on lower crushing activity.



Data compiled by the apex trade body Solvent Extractors’ Association (SEA) showed that oilmeal exports from India in the first two months between April – May period of the current financial year recorded at 502,005 tonnes as compared to 762,945 tonnes in the corresponding period last year.



The export of oilmeals during May 2013 was reported at 302,837 tonnes as compared to 359,855 tonnes in the same month of the previous year.



During April-May soybean meal export was drastically reduced to 195,943 tonnes from 456,420 tonnes while rapeseed meal has maintained pace, castor meal shipment has increased during May 2013.



Oilmeal import by South Korea from India during April-May 2013 is reported at 198,367 tonnes as compared to 212,388 tonnes last year consisting of 68,158 tonnes of rapeseed meal and 130,209 tonnes of castor meal. Iran imported of 148,234 tonnes as compared to 150,974 tonnes, comprises 148,158 tonnes of soybean meal, and small quantity of rapeseed meal.



Exports to Thailand were recorded at 48,047 tonnes as compared to 67,026 tonnes, consisting 9,166 tonnes of soybean meal, and 38,881 tonnes of rapeseed meal.



The shipment to Vietnam was witnessed at 26,545 tonnes as compared to 88,825 tonnes last year consisting of 1,445 tonnes of rapeseed meal and entire quantity of 25,100 tonnes of rice bran extraction.



Japan imported 10,141 tons compared to 84,989 tons of last year. Europe and others have imported 12,237 tons compared to 28,844 tons of last year. Overall export of oilmeals to all regions have fallen.

Source:-www.business-standard.com

No addition for cash credit if remand report by AO revealed that impugned sum was received prior to

IT : Where remand report submitted by Assessing Officer clearly revealed that amount in question was received prior to relevant assessment year, addition could not be made under section 68 during relevant assessment year

NEW DELHI HOTELS LTD Vs. ACIT

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 17.05.2013 + ITA 238/2013 + ITA 239/2013 + ITA 240/2013 NEW DELHI HOTELS LTD ... Appellant versus ACIT ... Respondent Advocates who appeared in this case: For the Appellant : Mr Anoop Sharma For the Respondent : Mr Abhishekh Maratha CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE VIBHU BAKHRU JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1. The present appeals have been filed on behalf of the assessee under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the "said Act") challenging the order dated 07.12.2012 passed by the Income Tax Appellate Tribunal. The Tribunal had, by the order dated 07.12.2012, disposed of three appeals being ITA Nos. 3742/DEL/2012, 3743/DEL/2012 and 1462/DEL/2012 which had been preferred by the ITA Nos. 238/13,239/13&240/13 Page 1 of 4 revenue relating to the assessment year 2004-05, 2009-10 and 2008-09, respectively. 2. These appeals raise a common question and thus, have been taken up together. 3. The issue sought to be raised in the present appeals is:- "Whether the rental income derived from the unsold flats which are shown as stock-in-trade in the books of the appellant/assessee would fall within the head "Profits and gains from business and profession" or under the head, "income from house property". 4. The Tribunal held that it would fall under the head of "profits and gains from business and profession", whereas it is the appellant/assessee's contention that it would fall within the head "income from house property". It appears that this issue is no longer debatable in view of the decision in the case of CIT v Ansal Housing Finance & Leasing Co. Ltd. decided on 31.10.2012 in ITA No. 18/1999. That decision has, subsequently, been followed in CIT v. Discovery Estates Pvt. Ltd (in ITA Nos. 1089/11 and 1090/2011) and CIT v. Discovery Holding Pvt. Ltd. (in ITA No. 1097/2011) decided on 18.02.2013. One of the questions raised in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) was "whether the Income-tax Appellate Tribunal was right in holding that the rental income should be assessed in the income from the business and not under the head "income from house property"?" This court answered that question in the negative by ITA Nos. 238/13,239/13&240/13 Page 2 of 4 following the decision in the case of Ansal Housing Finance & Leasing Co. Ltd (supra). 5. Mr Maratha appearing on behalf of the revenue contended that Ansal Housing Finance & Leasing Co. Ltd (supra) was a decision where the question was with regard to deemed rent on the basis of annual letting value (ALV) whereas in the present appeals, the issue is with regard to the actual rent received in respect of flats let out by the appellant/assessee. However, we find that in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) the issue was in the backdrop of actual rent receipts and not on the basis of deemed rent. Therefore, the decision of this court in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) would govern the present case also. 6. Consequently, while framing the question as to whether the Income-tax Appellate Tribunal was right in holding that rental income should be assessed under the head of "profits and gains from business and profession" and not under the head "income from house property", we answer the same in the negative. We may add, however, that the learned counsel for the appellant had also taken the plea of consistency ITA Nos. 238/13,239/13&240/13 Page 3 of 4 but, we have not examined the same as it was not necessary for us to do so because of the position indicated above. 7. These appeals are allowed as above. BADAR DURREZ AHMED, J VIBHU BAKHRU, J MAY 17, 2013 kb ITA Nos. 238/13,239/13&240/13 Page 4 of 4

COMMISSIONER OF INCOME TAX-(C)-III Vs. FLEX FOODS LTD

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 10.05.2013 + ITA 21/2013 & ITA 20/2013 COMMISSIONER OF INCOME TAX-(C)-III ... Appellant versus FLEX FOODS LTD ... Respondent Advocates who appeared in this case: For the Appellan t : Mr N.P. Sahni For the Respondent : Mr M.P. Rastogi with Mr K.N. Ahuja CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE VIBHU BAKHRU JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1. These appeals by the revenue are in respect of the assessment years 2003-04 and 2004-05 and arise out of the common order passed by the Income Tax Appellate Tribunal on 17.04.2012 in ITA Nos. 4880-4881/Del/2011, respectively. Limited notice had been issued in this matter on the previous occasion. The only issue sought to be raised in the present appeals relate to the submissions made by the learned counsel for the appellant/revenue that miscellaneous income and interest income should have been reduced while computing the deduction of eligible profits under Section 80HHC which would also be the same amount for the purposes of Section 115JB of the Income Tax Act, 1961 (hereinafter referred to as `the said Act') 2. We have heard the counsel for the parties at length. There appears to be a misunderstanding on the part of the revenue. It is abundantly clear that for ITA Nos. 21/13 & 20/13 Page 1 of 4 the purposes of computing the profits derived from the export of goods as referred to in Section 80HHC, the same has to be computed under sub-section (3) or sub-section (3A) of Section 80HHC. In the present case, clause (a) of sub-section (3) of Section 80HHC would be applicable. Therefore, the profits derived from exports would have to be computed by multiplying the profits of business with the ratio of export turnover to total turnover. Or, in other words:- Profits derived from Exports = Profits of business x Export turnover Total Turnover The profits of business have to be computed in the manner given in Explanation (baa) after sub-section (4) of Section 80HHC. The contention of the revenue is that in computing the deduction under section 80HHC, the same should have been reduced by the extent of miscellaneous income and interest income as the same cannot be considered to be part of export profits. This is where the misunderstanding on the part of the revenue lies. The so called miscellaneous income and interest income, in the present case, have never been regarded as part of the export turnover. They constitute part of the profits of business. The Assessing Officer, in the present case, has accepted the fact that the miscellaneous income and the interest income were part of the business income of the assessee. Once that is accepted, they would constitute part of the profits of business, of course, to a limited extent as provided in Explanation (baa) referred to above. That is exactly what has been done by the Assessing Officer as would be apparent from the computation, which we are reproducing herein below:- "Subject to these observations, the total income of the assessee is assessed as follows"- ITA Nos. 21/13 & 20/13 Page 2 of 4 Business income as declared by the assessee 9,23,71,923/- Add: On account of foreign exchange loss as discussed above 4,95 736/- 9,28,67,659/- Less: B/f losses/depreciation 7,90,26,260/- 1,38,41,399/- Less: Deduction u/s 80HHC as discussed above. Profit as above 1,38,41,399/- Less: 90% of other income of ` 29,83,818/- 26,85,436/- 1,11,55,963/- Deduction u/s 80HHC = Profit X Exportturnover/Total turnover = 1,11,55,963 X 8,18,29,489/25,03,74,251 = 81,01,803/- 30% of above = 24,30,541/- 24,30,541/- 1,14,10,858/- Computation of book profit u/s 115JB Book profit as taken in the computation of income 2,21,01,867/- Add: Claim for deduction u/s 80HHC not allowed as per discussion (supra) 6,37,08,462/- Book profit u/s 115JB 8,58,10,329/- Rounded off u/s 288A 8,58,10,330/-" 3. In respect of the above computation, there was no grievance on the part of the assessee upto the point the deduction under Section 80HHC has been computed at ` 81,01,803/-. The grievance of the respondent/assessee was only with regard to limiting the deductions to 30% of the above figure of ` 81,01,803/- by invoking Section 80HHC (1B) while computing the book profit under Section 115JB. That issue is no longer in dispute in view of the decision of the Supreme Court in the case of Ajanta Pharma v. CIT: 327 ITR 305 (SC), where it was made clear that 100% of the deduction would be allowable. Therefore, the Assessing Officer was wrong in allowing only 30% of the deduction allowable under Section 80HHC for the purposes of computing book profits under Section 115JB. ITA Nos. 21/13 & 20/13 Page 3 of 4 4. It is, therefore, apparent that with regard to the issue of miscellaneous income and interest income, there was no dispute with the Assessing Officer's treatment of the same as being part of business income. Consequently, the contention sought to be raised on behalf of the revenue that the miscellaneous income and interest income should be excluded does not arise at all. This is so because the assessing officer had treated the same as part of business income of the assessee. 5. As such no question of law, what to speak of a substantial question of law, arises for our consideration. 6. The appeals are dismissed. BADAR DURREZ AHMED, J VIBHU BAKHRU, J MAY 10, 2013 su ITA Nos. 21/13 & 20/13 Page 4 of 4

BHARAT SANCHAR NIGAM LTD. Vs. DEPUTY COMMISSIONER OF INCOME TAX AND ORS.

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 09.05.2013 + W.P.(C) 550/2007 BHARAT SANCHAR NIGAM LTD. .. Petitioner versus DEPUTY COMMISSIONER OF INCOME .. Respondent AND + W.P.(C) 7707/2007 & CM 14692/2007 BHARAT SANCHAR NIGAM LTD. .. Petitioner versus DEPUTY COMMISSIONER OF INCOME TAX AND ORS. .. Respondents Advocates who appeared in these case: For the Petitioner :Mr M.S. Syali, Sr. Advocate with Mr MayankNagi and Ms Husnal Syali, Advocate. For the Respondent :Mr Sanjeev Rajpal, Advocate. CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE VIBHU BAKHRU JUDGMENT VIBHU BAKHRU, J 1. These two writ petitions are filed by Bharat Sanchar Nigam Limited (BSNL) and seek to challenge the notices under Section 148 of the Income Tax Act (hereinafter also referred to as "the Act") and the proceedings initiated pursuant thereto, for reopening the concluded assessments for the assessment year 2001-02 and 2002-03. The petitioner has, in Writ Petition No. 550/2007 W.P.(C) Nos. 550 & 7707/2007 Page 1 of 22 challenged the notice dated 23.11.2005 issued under Section 148 of the Act and the order dated 08.02.2006 passed by the Assessing Officer rejecting the objections raised by the petitioner against the reasons for issuance of the notice dated 23.11.2005. The Assessing officer had, by the notice dated 23.11.2005, initiated proceedings for reassessment of income for the period relevant to the assessment year 2001-02. The challenge in the Writ Petition No. 7707 of 2007 is with respect to the notice dated 12.3.2007 issued under Section 148 of the Act for initiating re-assessment proceedings in relation to the Assessment year 2002-03. As both the writ petitions raised similar issues, the same were taken up for hearing together and are being disposed off by this common order. 2. The petitioner is a Government Company and was incorporated on 15.09.2000 under the Companies Act, 1956. Prior to the incorporation of the petitioner company, the telecommunication services were being provided by Government of India, Ministry of Communication through its two departments, namely Department of Telecommunication Services (in short "DTS") and Department of Telecommunication Operation (in short "DTO"). The petitioner company was incorporated pursuant to the policy of the Government of India (National Telecom Policy 1999) to hive off its business of providing telecom services and operate the same through a corporate entity. The petitioner was constituted as a wholly owned Government of India enterprise for taking over the business of providing telecommunication services from DTO and DTS. The petitioner started functioning w.e.f. 01.10.2000. The terms of transfer of undertaking of telecom services from DTO and DTS to BSNL was recorded in an Office Memorandum dated 30.9.2000 and the relevant portion of the same is quoted below: "3. Government of India has decided to transfer all assets and liabilities (except certain assets which will be retained by Department W.P.(C) Nos. 550 & 7707/2007 Page 2 of 22 of Telecommunications required for the units and offices under control of DoT, to be worked out later on), to Bharat Sanchar Nigam Limited w.e.f. 1st October, 2000. The transfer of assets and liabilities to the Company will be subject to the following terms and conditions:- (i) The Company will carry out the duties and responsibilities regarding establishing, maintaining and working all types of telecommunication services in the country in accordance with and under the terms and conditions of the licence granted by the Central Government under the Indian Telegraph Act, 1885 and such other directions as may be given by the Central Government from time to time, (ii) The assets and liabilities of the Department of Telecommunications, Department of Telecom Services and Department of Telecom operations (the Government) will stand transferred to the Company, with effect from 1st October, 2000. The details of the assets will be worked out as per records available with the various Divisions and other units as on 30th September, 2000 after records and accounts are finalized up to this period. (iii) The assets and liabilities in respect of the business currently being carried out on account of the Government shall stand transferred to the Company on the book value thereof, which will be ascertained in the manner aforesaid. The book value of the assets comprising the business being transferred to the Company has been provisionally assessed as Rs 63,000 crores. The said sum of Rs 63,000 crores will be treated as the provisional value of the business being transferred to and taken over by the Company subject to finalization of the transfer value by 31.03.2001 in consultation with Ministry of Finance. (iv) The Assets are being transferred to the Company in consideration of Rs 5,000 crore equity (for which the Company will issue Five Hundred crores Equity Shares of face value of Rupees Ten each fully paid up having W.P.(C) Nos. 550 & 7707/2007 Page 3 of 22 aggregate value of Rupees Five Thousand crores to the VENDOR or his nominees), Rs 1500 crores ways, and means advance and the balance as a mix of long term debt, free reserves and preference share capital. The accounting treatment of this mix shall be notified later. (v) The capital structure of Bharat Sanchar Nigam Limited will be finalized by the Ministry of Communications, Department of Telecommunications in consultation with Ministry of Finance and the Comptroller and Auditor General of India, if necessary. (vi) The Company, Bharat Sanchar Nigam Limited shall be liable to make repayment of bonds raised by MTNL for DoT/DTS/DTO, which are now being transferred, to the Company. (vii) The Company as the successor company shall be responsible for all assets and liabilities and for satisfactory execution of all agreements, contracts and obligations in force, which pertain the business being transferred to it. (viii) The Company shall be solely responsible for honouring and performing all contracts/agreements and shall be liable for any defaults, delays or non-performance. The Company shall keep for all times the Government indemnified from all claims. (ix) After finalization of assets and liabilities and assets to be retained by Dot regular transfer deed(s) will be executed subsequently in respect of transfer of business to the Company listing out specifically all the assets being transferred. These orders will come into force from 1st October, 2000." 3. A Memorandum of Understanding (MOU) was executed between the Government of India, Ministry of Telecommunications and BSNL on 30.09.2000 for the purpose of transferring assets and liabilities from the Ministry of W.P.(C) Nos. 550 & 7707/2007 Page 4 of 22 Communications to the petitioner. In terms of the said MOU, the function of providing telecommunication services was taken over by the petitioner company and an agreement for transfer of business was also entered into between the Government of India, Ministry of Communication and BSNL. The said agreement for transfer of business, inter alia, recorded that "the business of providing telecom services and telecom network, inter-alia, comprising, management, control, operations and maintenance of communications network and services spread all over India, manufacturing, research and development and other facilities, some being also spread all over India, which business (hereinafter also referred to as "the Business"), recently entrusted to, and being currently carried on by DTO and DTS shall stand transferred to and vest in BSNL who has taken over or deemed to have taken over the same, as running concern, subject to the provisions and stipulations of this Agreement." 4. As per clause 6 of the agreement of transfer, the assets and liabilities in respect of the business currently carried on account of DTS and DTO were transferred to the petitioner at book values, which were at the relevant time being ascertained. The agreement also recorded that the parties had agreed that the total book value of the assets comprising the business of the petitioner would be in excess of Rs 63,000 Crores and therefore the said sum would be taken as the provisional value of the business being transferred. Clause 7 of the agreement recorded the consideration at which the assets were being transferred as under :- "7. The Assets are being transferred to the Company in consideration of Rs 5,000 crore equity (for which the Company will issue Five hundred crores Equity Shares of face value of Rupees Ten each fully paid up having aggregate value of Rupees Five Thousand crores to the VENDOR or his nominees), Rs 1500 crores ways and means advance and the balance as a mix W.P.(C) Nos. 550 & 7707/2007 Page 5 of 22 of long term debt free reserves and preference share capital. The accounting treatment of this mix shall be notified later." 5. The petitioner filed its return of income for the period 15.09.2000 to 31.03.2001, relevant to the assessment year 2001-02 on 26.03.2002 and declared a loss of Rs 58,46,31,20,000/-. The said return was taken up for scrutiny and the Assessing Officer framed an assessment under Section 143(3) of the Income Tax Act vide the assessment order dated 11.02.2004 assessing a net loss of Rs 39,53,78,45,000/-. However, the company was covered under the provisions of section 115JB of the Act and it declared taxable book profit at Rs 1801,28,11,000/- and paid tax on it as per section 115JB of the Act. 6. The Assessing Officer issued a notice dated 23.11.2005 under section 148 of the Act stating that he had reasons to believe that income of the petitioner had escaped assessment within the meaning of section 147 of the Act and called upon the petitioner to file its return of income for the said period. The petitioner requested for the reasons for reopening of the assessment under section 148 of the Act which were furnished by the Assessing Officer under the cover of his letter dated 22.12.2005. The reasons for issuance of notice under section 148 of the Act, as furnished by the Assessing Officer, referred to the capital structure of the petitioner company and the inference drawn by him was that the cost of assets was being met by the general reserve as reflected in the capital structure of the company. As per the Assessing Officer, a sum equal to the general reserve would be required to be reduced from the cost of the assets in terms of Explanation 10 of Section 43(1) of the Act. The Assessing Officer observed that the depreciation had been claimed by the petitioner on the cost of the assets without reducing the proportionate amount of reserves therefrom and on this basis the Assessing Officer had formed a belief that the assessee had claimed excessive depreciation. The Assessing Officer indicated that the proportionate amount of reserves had to W.P.(C) Nos. 550 & 7707/2007 Page 6 of 22 be reduced from the fixed assets to arrive at their actual cost on which depreciation would be allowable. 7. The petitioner filed its objections on 20.01.2006 to the reasons as furnished by the Assessing Officer in terms of the decision of the Supreme Court in the case of M/s GKN Driveshafts (India) Ltd. v. ITO: (2003) 259 ITR 19 (SC). The petitioner contended that all material facts had been placed before the Assessing Officer during the first round of assessment and various queries were raised by the Assessing Officer inter-alia with respect to the valuation of the assets as well as the depreciation claimed by the petitioner and thus there was no new fact which had been discovered subsequent to the assessment order which would warrant reopening of the concluded assessment. The petitioner objected to the proposition that reserves were required to be reduced from the value of the assets for purposes of computing depreciation. It was contended by the petitioner that this was only a change of opinion as to how depreciation was to be computed and thus it was impermissible for the Assessing Officer to initiate reassessment proceedings on this ground. The petitioner also contended that Explanation 10 to Section 43(1) of the Act had no application in the present case as the configuration of the capital structure of the company could not possibly lead to a conclusion that the reserves of the petitioner company represented cost of assets which had been met by the Government of India in the form of a subsidy, a grant or a reimbursement. The reserves were neither a subsidy nor a grant or reimbursement by the Government of India and, therefore, the premise on which the assessment was sought to be reopened was erroneous. 8. The objections raised by the petitioner were rejected by the Assessing Officer by an order dated 08.02.2006. The petitioner thus filed the present writ petition on 02.03.2006. However, the Writ Petition No. 550 of 2007 was not listed as the petitioner had sought approval from COD which had not been W.P.(C) Nos. 550 & 7707/2007 Page 7 of 22 accorded at the material time. The COD granted its approval to proceed with the writ petition at its meeting held on 21.12.2006 which was communicated to the petitioner vide a letter dated 03.01.2007. In the meantime, the Assessing Officer completed the reassessment proceedings for the year 2001-02 by his order dated 22.12.2006. The Assessing Officer recomputed the allowable depreciation at Rs 56,28,89,21,000/- against the amount of Rs 1,26,46,77,42,000/- as computed earlier. The excess depreciation of Rs 70,17,88,21,000/- has been added to the income of the petitioner for the relevant assessment year and the Assessing Officer has raised a demand for a sum of Rs 802,93,34,358/- by the notice of demand dated 22.12.2006. The present petition (i.e. Writ Petition No. 550 of 2007) was thereafter listed for hearing and by the order dated 01.03.2007 this Court directed that the date of filing of the petition be deemed to be 24.01.2007. 9. The issues raised in Writ Petition No.7707/2007 are identical and pertain to the subsequent period i.e., Assessment year 2002-03. The petitioner had filed its return of income for the relevant assessment year 2002-03 on 30.10.2002 declaring a loss of Rs 19,27,43,00,000. However, the audited balance sheet disclosed a profit of Rs 68,57,32,00,000 which was liable to tax under Section 115JB of the Act. The said return was taken up for scrutiny and the Assessing Officer framed the assessment under Section 143(3) of the Act vide the assessment order dated 28.02.2005. 10. The Assessing Officer issued notice dated 12.03.2007 of the Act for reopening the assessment for the period relevant to the Assessment Year 2002- 03. At the request of the assessee, the Assessing Officer supplied the reasons for issuance of notice under Section 148 of the Act, under the cover of his letter dated 28.05.2007. The reasons furnished by the Assessing Officer for reopening the assessment are similar to the reasons as furnished by the Assessing Officer W.P.(C) Nos. 550 & 7707/2007 Page 8 of 22 for initiating reassessment proceedings for the assessment year 2001-02 which are the subject matter of challenge in the Writ Petition No. 550/2007. 11. The learned counsel for the petitioner contended that the reassessment proceedings are illegal and without jurisdiction. It is contended that action of the Assessing Officer in seeking reassessment for the reasons as supplied indicate that the assessments were sought to be reopened only on a mere change of opinion as all relevant facts were within the knowledge of the Assessing Officer during the first round of assessment and were subject matter of inquiry in the initial assessment proceedings. The learned counsel for the petitioner has drawn our attention to Para 2 of Schedule T to the notes of accounts to the audited balance sheet which had been submitted to the Assessing Officer. The notes clearly disclose the value of the assets as well as the capital structure of the company. The relevant paragraph of the notes to accounts is quoted below:- "Assets and Liabilities taken over from DoT In pursuance of the Memorandum of Understanding dated 30th September 2000 executed between President of India and BSNL all assets and liabilities in respect of business carried out by DTS and DTO were transferred to the Company with effect from 1st October 2000 at a provisional value of Rs 630,000 Million. The value was subject to finalisation with Ministry of Finance by 31st March 2001, which has not yet been done. The assets and liabilities as on 1 st October 2000 have been classified broadly under the following heads: Assets (` In Million) -- Fixed Assets 501078.6 -- Capital Work-in-progress 47900.9 -- Inventory 18132.2 -- Sundry Debtors 33103.8 ------------- 600215.5 Liabilities W.P.(C) Nos. 550 & 7707/2007 Page 9 of 22 -- Customer Deposits (Excluding interest accrued thereon) 38606.5 -- Net assets taken over by the Company 571609 -- Contingent liabilities taken over by the Company --- The net assets (including liabilities) transferred to the Company as of 1st October 2000 are subject to confirmation by DoT as regards to ownership and the value. The Capital structure for BSNL concurred in by Ministry of Finance and conveyed by Department of Telecommunications vide their UN. No. 1-2/2000-B (Pt.) dated 1 December 2001 as consideration for transferring the above stated assets and liabilities is as follows: -- Equity 50000 -- Non-cumulative preference Shares (9%) 75000 -- 15 Years Government Load (12%) 75000 -- Loan from MTNL (Refer Note 101) 30000 -- Reserves # 331609 ------------- 571609 -------------" 12. It has also been brought to our notice that during the assessment proceedings relevant to the assessment year 2001-02, the Assessing Officer issued a questionnaire dated 13.12.2002 seeking various explanations for the purpose of framing the assessment. Question nos. 5 and 6 of the said questionnaire are relevant as the Assessing Officer had raised queries regarding the value of the reserves as well as the taxability of the treatment of the surplus in the hands of the transferors (Department of Telecommunication Services and Department of Telecommunication Operation) the said queries are quoted below:- "5. Explain as to how the value of reserve, which factually is the balance of surplus amounting to Rs 3,31,609/-, has been worked out. Whether any final decision as to the surplus available on W.P.(C) Nos. 550 & 7707/2007 Page 10 of 22 account of such takeover in the hands of DTS and DTO separately of the above said amount was finalized?" 6. In case no finalization as to the taxability or treatment of such surplus in the hands of DTS and DTO have been finalized, explain as to why such surplus should not be subjected to tax in the hands of the assessee company?" 13. The petitioner replied to the queries and the assessment order was framed after considering the same. The assessment order also noted that the assets had been transferred at book value which would not be less than Rs 63,000 Crores. The components, on the liability side of the balance sheet of the petitioner were examined and the Assessing Officer noted that the fixed components on the liability side consisted of share capital and loans aggregating to Rs20,000 Crores and the balance amount would be reflected as reserves which would increase or decrease corresponding to the change in the book value of the assets as finalized. The relevant portion of the assessment order dated 11.02.2004 for the assessment year 2001-02 is quoted below:- "10.2 It should be clearly understood that given the huge asset base, it was not possible to arrive at the precise value of the assets handed over by the Government. Therefore, it was decided that the precise value of the total assets would be arrived at in due course and in any case it would not be less than Rs 63,000 Crore. Till the process of precise ascertainment of the value of the assets transferred was completed it was expected that the amount would keep changing. This is true also because in the next year the assessee took over further assets amounting to Rs 3578 Crore and these were adjusted with the assets taken over as on 1.10.2000. Therefore, on the liability side the fixed components, consisting of capital and loan were only adding up to Rs 20,000 Crore as detailed above. The balancing figure was to represent the 'reserves' on the liability side and with the change in the value of the assets taken over the `reserve' was to be increased or decreased correspondingly. This formed the balance sheet of the company at the time of transfer of business from Government of India to BSNL." W.P.(C) Nos. 550 & 7707/2007 Page 11 of 22 14. It is thus contended on behalf of the petitioner, that the Assessing Officer was fully conscious of all relevant facts which had been duly disclosed before him. The provisions of Explanation 10 of Section 43(1) were not applicable and consequently the cost of assets had been taken at the book value and depreciation was computed accordingly. The subsequent action of the Assessing Officer in seeking to apply the provisions of Explanation 10 to Section 43(1) of the Act would only tantamount to a change of opinion as no new material was discovered which would warrant re-computation of depreciation, on the contrary, the issues relating to depreciation and value of assets had been discussed in the first round of assessment itself. 15. The learned counsel for the petitioner also relied on a full bench decision of this court in the case of CIT v. Kelvinator of India Ltd.: 99 (2002) DLT 221, wherein it has been held that if the Assessing Officer has examined the facts and not made an addition, it cannot be presumed that he had not applied his mind to the assessment. The learned counsel also cited the decision of this court of in the case of CIT v. Usha International Ltd.: (2012) 348 ITR 485 (Del.) as also the decision of the Supreme Court in the case of CIT Vs. Kelvinator of India Ltd.: (2010) 320 ITR 561 (SC), in support of his contention that reassessment proceedings cannot be initiated on a mere change of opinion. 16. The learned counsel for the petitioner also urged that, even on merits, no reasonable person could come to the conclusion that the reserves of the company represented cost of the assets of the company being met by the government in the form of a subsidy, grant or reimbursement so as to attract the provisions of Explanation 10 to Section 43(1) of the Act. It is contended that treating the reserves separately from the capital was fallacious as the reserves represented W.P.(C) Nos. 550 & 7707/2007 Page 12 of 22 shareholder's fund and the value of the shares would include not only the face value of shares but also reserves and surpluses. 17. We have heard the learned counsel for both the parties and the principal question that needs to be addressed is whether the action of the Assessing Officer in reopening the assessment is based on any tangible material or represents only a mere change of opinion? The second issue that can be considered is whether, on the basis of the capital structure of the petitioner, an inference could be drawn that reserves represented cost of assets met by the government so as to fall within the ambit of Explanation 10 to Section 43(1) of the Act? 18. The petitioner company has been incorporated to provide the telecom services which were being carried out earlier by Department of Telecommunication Services (DTS) and Department of Telecommunication Operations (DTO). As per the decision of the Government of India, the business being conducted by DTO and DTS were vested with the petitioner company. This was pursuant to NTP 1999, whereunder the Government had decided to corporatise certain services and operations being carried on by the Department of Telecommunications under the Ministry of Communications. Thus, in a sense the Government decided to incorporate a new company as a Government of India enterprise to carry on the business of telecom services instead of conducting the same directly. The assets were to be transferred at book values. The value of net assets was agreed to be in excess of Rs 63,000 Crores and, therefore, the same was provisionally taken as a book value of the business being transferred. The consideration for the same was agreed to be met by issue of equity capital of Rs 5000 Crores (500 Crore shares of the face value of Rs 10/- each), preference share capital of Rs 7500 Crores and debt of Rs 7500 Crores. The balance consideration was reflected as reserves. This capital structure was also duly W.P.(C) Nos. 550 & 7707/2007 Page 13 of 22 disclosed by the petitioner company in its Directors Report forming a part of the first annual report as under:- "CAPITAL STRUCTURE & FINANCING The Authorised Share Capital of your Company is Rs 10000 crores, and the present paid up capital is Rs 5000 crores. Pursuant to the MoU dated 30th September, 2000, signed with the Government of India, Ministry of Communications, your Company took over the business of erstwhile Deptt. of Telecom Services and Deptt. of Telecom Operations with effect from 1st October, 2000 on a going concern basis alongwith all the assets, liabilities and all the contractual obligations. The business was transferred to the Company at an estimated value of Rs 63,000 crores. The Capital Structure of the Company as indicated by DoT is as under : Rs 5000 crores Fully paid up Equity Capital. Rs 7500 crores Preference Share Capital. Rs 7500 crores Loans. The Balancing figure will be represented by the Reserves." 19. Paragraph 2 of schedule T to the Final accounts for the period 15.9.2000 to 31.3.2001 containing the notes to the accounts as reproduced hereinbefore also disclosed the value at which the assets were transferred to the petitioner and also the capital structure as was decided at the material time. Indisputably, the Assessing Officer had occasion to examine the aspect of valuation of assets and the same is also clearly evident from the questionnaire framed by the Assessing officer for the purposes of scrutiny of the return filed by the petitioner. Merely because there is no discussion regarding applicability of Explanation 10 to Section 43(1) of the Act cannot lead to the conclusion that the Assessing Officer was ignorant of the said provisions. There is no occasion for us to presume that the assessment order framed by the Assessing Officer was without application of W.P.(C) Nos. 550 & 7707/2007 Page 14 of 22 mind as to the relevant facts and the applicable laws. A full bench of this court has held in the case of CIT v. Kelvinator of India Ltd. (DHC) (supra) as under: "43. We also cannot accept submission of Mr Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded on analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under Section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of Sub-section (1) of Section 143 or Sub-section (3) of Section 143. When a regular order of assessment is passed in terms of the said Sub-section (3) of Section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of Clause (e) of Section 114 of the Indian Evidence Act the judicial and official acts have been regularly performed...." 20. Admittedly, no new tangible material has been discovered subsequent to the framing of the first assessment relating to the assessment year 2001-02. The reasons as furnished by the Assessing Officer, ex-facie, indicates that he has sought to make certain inferences based on disclosures which were already on record and had been considered while framing the first assessment. The relevant portion of the reasons for issue of notice under Section 148 are quoted below: "The assessee company came into existence on 1st October 2000 and the year under consideration is the first year of the assessee. The history of the assessee company is that in pursuance to the New Telecom Policy, 1999 the Government decided to corporatise the service provision functions of the Department of Telecommunication (DoT) were carved out for providing telecom services in the country and maintaining the telecom network factories. The business of providing telecom services and running the telecom Factories was transferred to the new company i.e. BSNL w.e.f. 1.10.2000 AND THE Government retained functions of policy formulation, licencing, R&D etc. W.P.(C) Nos. 550 & 7707/2007 Page 15 of 22 The takeover of the assets and liabilities by the Company was in terms and conditions with the Office Memorandum No.-2-30/2000 dated 30.09.2000 issued by the Ministry of Communications, Govt. of India. In terms of this OM dated 30.09.2000, the total book value of the assets transferred to BSNL was provisionally assessed as `63,000 crores subject to finalization of the transfer value by 31.03.2001. In the consultation with the Ministry of Finance. The assets transferred included fixed assets (like land, building etc.) and trading assets (like debtors raised by DOT and not realized till the time of transfer of business). Para 3 (iv) of the OM further mentioned that the assets were transferred to the Company in consideration of Rs 5000 crores equity (for which the Company will issue Five Hundred crores Equity Shares of face value of Rs 10/- each fully paid up having aggregate value of Rs Five Thousand crores to the VENDOR or his nominees), Rs 1500 crores ways and means advance and the balance as a mix of long term debt, free reserves and preference share capital. It was also mentioned that the accounting treatment of this mix would be notified later. Para 3 (v) of the OM mentioned that the capital structure of BSNL would be finalized by the Ministry of Communications, Department of Telecommunications in consultation with Ministry of Finance and the Comptroller and Auditor General of India, if necessary. Accordingly, another Office Memorandum No. 67-2/2002- OC dated 19.06.2002 was issued by the Department of Telecommunications, Govt. Of India regarding the terms of capital structure and package of measures in the form of financial reliefs. As per this OM the capital structure of BSNL was as follows: Paid up Equity Share Capital Rs 5000 crores 9% (Non-Cumulative) Preference Rs 7500 crores Government Loan Rs 7500 crores MTNL Loan Rs 3000 crores Reserves Balance of asset Value transferred. During the course of assessment for the A.Y. 2003-04, the assessee was required to explain the nature of reserves as mentioned in the capital structure of BSNL. In response the assessee stated that it is in the nature of a `capital reserve' and is the `balance of asset value W.P.(C) Nos. 550 & 7707/2007 Page 16 of 22 transferred'. The assessee further gave a mathematical equation for reserves as: RESERVES = Asset ­ Liabilities ­ Paid-up Equity Capital ­ 9% (NC) Preference Share Capital ­ Government Loan ­ MTNL Loan. Thus, from the assesse's definition of reserves, the following can be derived: ASSET = Reserves + Liabilities + Paid-up Equity Capital + 9% (NC) Preference Share Capital + Government Loan + MTNL Loan. The assets transferred to BSNL include fixed assets as well as trading assets. Therefore from the above equation it is clear that part of the cost of fixed assets of the assessee company are met by the reserves, which as per the assessee are in the nature of capital reserves. This means that to the extent of reserves, the cost, of fixed assets of the assessee company is met by the Government. Now, sub-section (1) of section 43 of the Income-tax Act, 1961 defines actual cost for the purpose of depreciation as the actual cost of assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. Explanation 10 to this sub-section further states that where a portion of the cost of an asset is met directly or indirectly by the Central Government in the form of a subsidy or grant or reimbursement (by whatever name called), then so much of the cost as is relatable such subsidy or grant or proviso to this explanation further states that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets such asset in respect of the or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. In the instant case part of fixed assets and part of other assets in met by the Government in form of reserves created at the time of corporatisation. Thus, the actual cost of fixed assets to the assessee must be reduced by that proportion of the reserves as the fixed assets bears to all the assets taken over at the time of corporatization." W.P.(C) Nos. 550 & 7707/2007 Page 17 of 22 21. It is apparent from the above that the conclusion drawn by the Assessing Officer that the cost of fixed assets of the petitioner company has been met by the Government is based on the capital structure as was recorded in various documents including the Office Memorandum dated 30.09.2000 issued by the Ministry of Telecommunication, Government of India. Whereas the earlier Assessing Officer had not thought it fit to conclude that the cost of the fixed assets were required to be reduced to the extent of the reserves during the first round of assessment, the reasons as recorded disclose that this was sought to be done by reopening the assessment. This in our view represents a clear change in the opinion without there being any further "tangible material" to warrant the same. It is trite law that a mere change of opinion cannot be a reason for reassessing income under Section 147 of the Act. The Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (SC) (Supra) has held as under:- "On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" W.P.(C) Nos. 550 & 7707/2007 Page 18 of 22 as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." 22. Following the aforesaid view we are of the opinion that the notices dated 23.11.2005 and 12.03.2007 under Section 148 of the Act and all proceedings initiated pursuant thereto are illegal and are liable to be quashed. 23. In view of our decision above, it is not necessary to examine the question whether the configuration of the capital structure of the petitioner could by itself provide a reason for the Assessing Officer to believe that provisions of Explanation 10 to Section 43(1) of the Act were applicable and the book value at which the assets were vested with the petitioner were required to be reduced to the extent of the reserves of the company. However, having heard the counsel for the parties on this issue, it is apposite that we consider the same. 24. Explanation 10 to Section 43(1) of the Act is as under: "Explanation 10. - Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." W.P.(C) Nos. 550 & 7707/2007 Page 19 of 22 25. The Assessing Officer seems to have proceeded on an assumption that whereas the value of share capital, issued to the Government as part consideration for the transfer of business to the petitioner company, is limited only to the face value of the shares, the reserves represent a subsidy, grant or reimbursement for meeting the cost of assets transferred. We find no basis for such an assumption. We are hard pressed to imagine as to how free reserves and surpluses of a company can be considered anything but as part of shareholders funds. The Assessing Officer erred in completely ignoring that reserves and surpluses of a company are a part of shareholders funds and the book value of equity share consists of not only the paid up capital but also the reserves and surpluses of the company. The format of the balance sheet as prescribed under Schedule VI of the Companies Act, 1956 also clearly indicates that reserves and surpluses are a part of shareholders fund. The balance sheet of the petitioners company also reflects the reserves and surpluses as a part of shareholders' funds. The relevant portion of the balance sheet of the petitioner company as on 31.03.2001 is quoted below:- "Shareholders' Funds Capital A 50.000,000 Preference Capital pending allotment (Refer Note 2.3 on T) 75,000,000 Reserves & Surplus B 339,079,523 Loan Funds Secured Loan C 5,100,000 Unsecured Loans D 107,983,258 __________ Total 577,162,781" 26. The scheme of hiving off the business of telecom services by Government of India to a corporate entity entailed incorporation of a wholly owned W.P.(C) Nos. 550 & 7707/2007 Page 20 of 22 government company (i.e, the petitioner company) and the transfer of the business as a going concern along with all its assets and liabilities to the company. The net assets were transferred at book value, which was agreed to be at least Rs 63,000/- Crores and in consideration of this the petitioner company accepted a liability of Rs 7500 Crores and issued both equity and preference share capital of the face value of Rs 5000 Crores and Rs 7,500 Crores, respectively. The balancing figure was reflected as reserves which is an integral part of the shareholders funds. The Government of India has transferred the assets to the petitioner company at their book value i.e., the value at which the said assets are reflected in the books of DTS and DTO and the book value of the Government of India's holding in the petitioner company as shareholder and a creditor aggregates the book value of the assets transferred. The configuration of the capital structure of the petitioner has no impact on the value of the Government's holding in the petitioner company as reserves of a company are subsumed in the book value of its capital. We find no basis, at all, for the Assessing Officer to surmise that reserves represent a subsidy, grant or reimbursement from which the cost of assets of the petitioner company are met and the whole consideration received by the Government of India for transfer of business is limited to the value of loans and the face value of the shares issued to the Government of India. A reserve represents the shareholders' fund and may be utilized in various ways including to declare dividends or for issuing bonus shares. There is no plausible reason to assume that the value of shareholders' holding in a company is limited to the face value of the issued and paid up share- capital and the reserves represent a subsidy or a grant or a reimbursement by the shareholders from which directly or indirectly the cost of the assets in the hands of a company are met. We are thus of the view that the reasons as furnished by the Assessing Officer for reopening the assessments could not possibly give rise W.P.(C) Nos. 550 & 7707/2007 Page 21 of 22 to any belief that income of the petitioner had escaped assessment and proceedings initiated on the basis of such reasons are liable to be quashed. 27. We accordingly set aside the notices dated 23.11.2005 and 12.03.2007 issued under Section 148 of the Act and quash all proceedings initiated pursuant thereto. The parties are left to bear their own cost. VIBHU BAKHRU, J BADAR DURREZ AHMED, J MAY 09, 2013' `rk'/`ns' W.P.(C) Nos. 550 & 7707/2007 Page 22 of 22

Tax rate on interest can’t exceed 12.5% under India-UAE DTAA and surcharge and cess can’t be levied

IT/ILT : Tax payable at 12.5 per cent on interest income under article 11(2) of DTAA between India and UAE is inclusive of surcharge and education cess

Even if there is no suppression by assessee, interest for delayed payment of service tax is leviable

ST : Once service tax liability has been accepted and paid by assessee, interest liability automatically gets attracted even if there was no suppression or intention to evade tax

Sec. 10A relief upheld as appellate authorities found assessee’s activities of software export as ge

IT : Where appellate authorities on basis of audit report, agreement with STPI, certificate in respect of custom boarding arrangement of assessee and payment received from various parties through channel of banks, concluded that assessee's activities of software development and export were genuine and, thus, its claim for exemption under section 10A was to be allowed, no interference was called for in said order of authorities below

No reassessment if claim of assessee was thoroughly examined by AO during scrutiny assessment

IT : Reassessment to make disallowance under section 40(a)(ia) held not justified when Assessing Officer had thoroughly and fully scrutinized assessee's claim in scrutiny assessment

Service tax penalty under sections 76 and 78 can’t be levied simultaneously

ST : In case show-cause notices were issued on or after 10-5-2008, penalty under sections 76 and 78 cannot be levied simultaneously

Mere claiming an untenable deduction isn’t sufficient to levy concealment penalty

IT : Mere making of a claim, which is not sustainable in law, would not, ipso facto amount to furnishing inaccurate particulars regarding income of assessee and would, therefore, not automatically result in a penalty order passed under section 271(1)(c)

Intentions to earn profit from demolition and reconstruction of a property liable to be taxed as bus

IT : Where assessee, a co-operative society, was having office and godown and it after obtaining permission demolished said office and godown and constructed shops at that site and sold such shops to individual purchasers, income earned on sale of shops formed business income

Central Excise Notification No 20/2013 dated 05-06-2013

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

Notification No. 20/2013-Central Excise

New Delhi, the 5^th June, 2013

G.S.R. (E). - In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2012-Central Excise, dated the 17^th March, 2012 which was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 163(E) dated the 17^th March, 2012, namely: -

In the said notification, in the Table,-

1. in S. No. 189, against item (i), for the entry in column (4), the entry “7%” shall be substituted;


2. in S. No. 191, against item (i), for the entry in column (4), the entry “7%” shall be substituted.

[F. No. 354/95/2013-TRU]

[Raj Kumar Digvijay]

Under Secretary to the Government of India

Note:- The principal notification No. 12/2012-Central Excise, dated the 17^th March, 2012 was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 163(E) dated the 17^th March, 2012 and was last amended vide notification No.16/2013-Central Excise, dated the 8^th May, 2013 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R 295 (E) dated the 8^th May, 2013.

Customs Notification No.31/ 2013 dated 05-06-2013

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

Notification No. 31/2013-Customs

New Delhi, the 5^th June, 2013

G.S.R. (E). - In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2012-Customs, dated the 17^th March, 2012 which was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide G.S.R. 185(E) dated the 17^th March, 2012, namely: -

In the said notification, in the Table,-

1. against S. No. 116, for the entry in column (5), the entry “6%” shall be substituted;


2. against S. No. 318, for the entry in column (5), the entry “6%” shall be substituted;


3. in S. No. 321, against item (i), for the entry in column (4), the entry “8%” shall be substituted;


4. against S. No. 323, for the entry in column (4), the entry “8%” shall be substituted;


5. against S. No. 328, for the entry in column (4), the entry “8%” shall be substituted.

[F. No. 354/95/2013-TRU]

[Raj Kumar Digvijay]

Under Secretary to the Government of India

Note:- The principal notification No. 12/2012-Customs, dated the 17^th March, 2012 was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 185(E) dated the 17^th March, 2012 and was last amended vide notification No. 30/2013-Customs dated the 21^st May, 2013 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R.325 (E) dated 21^st May, 2013.

Any mode of receiving the export proceeds is acceptable till it’s in accordance with directions issu

FEMA/ILT : FEM (Manner of Receipt and Payment) (Second Amendment) Regulations, 2013 - Amendment in Regulation 3

SEBI issues clarifications on its earlier circular on ‘Manner of dealing with audit reports filed by

SEBI : Clarification on SEBI's Circular Dated August 13, 2012 Providing for the "Manner of Dealing with Audit Reports Filed by Listed Companies"

Agency PE exists only if agent fits into meaning of ‘dependent agent’ provided in Article 5 of India

IT/ILT : In order to treat any agent as PE within meaning of Paras 4 and 5 of article 5 of relevant DTAA it is very vital that such agent should fit into description of 'Dependent Agent' and has to perform either of activities as mentioned in articles 5(4) and 5(5)