Case Law Details

Case Name : GAP International Sourcing India Private Limited Vs Deputy Commissioner of Income Tax (Delhi High Court)
Appeal Number : I.T.A. No. 4073/Del/2010
Date of Judgement/Order :
Related Assessment Year :
Courts : All High Courts (5290) Delhi High Court (1481)

Recently, the Delhi bench of the Income-tax Appellate Tribunal remitted back the matter to the Disputes Resolution Panel (DRP) for reassessment since the directions of the DRP were found to be very laconic and non-speaking. The Tribunal, while setting aside such directions commented that the DRP has not considered the voluminous submissions of the taxpayer.

Facts of the case

• The taxpayer, an Indian company, had filed objections to the DRP against the draft assessment order (also incorporating transfer pricing issues).

• The taxpayer made voluminous submissions before the DRP. However, the DRP passed the directions without considering the submissions and arguments of the taxpayer.

DRP’s contentions

While issuing directions, the DRP did not consider the submissions placed on record by the taxpayer and commented as under:

• The issues involved are flowing from the transfer pricing orders in earlier years and the matter is under litigation for the earlier years;

• The taxpayer has used Berry Ratios as a Profit Level Indicator (PLI) which is rightly rejected by the Transfer Pricing Officer (TPO) based on the reason that as per provisions of the law, the PLI should have an element of profit in the nominator. Hence, the methodology of the TPO is upheld.

• Sufficient opportunity was given to the taxpayer by the TPO and the taxpayer’s contentions have been answered in the TP Order.

The DRP further made general remarks on high risk undertaken by the taxpayer, requiring higher margins; development of supply chain intangible deserving higher margins, which were not based on any analysis done by DRP.

Aggrieved by the order (incorporating the DRP’s directions) of the Assessing Officer, the taxpayer filed an appeal with the Tribunal.

Tribunal’s Ruling

The Tribunal held as under:

• The DRP has passed a very laconic order against the provision of the law and the directions only tantamount to supervising the Assessing Officer’s draft order.

• The taxpayer’s contentions that its submissions have been brushed aside without giving any proper consideration by DRP, are cogent.

• Reference was made to the decision of Honourable Supreme Court in the case of M/s Sahara India (Farms) Vs. CIT & Anr. In [2008] 300 ITR 403 which held that even an administrative order needs to be consistent with the rules of natural justice.

With these remarks, the Tribunal remitted the matter to the DRP for reassessing the case and to pass a speaking direction under the provisions of the law. Merits of the case were not considered by the Tribunal.

The Tribunal also emphasised that the taxpayer needs to be provided an adequate opportunity of being heard.

Our Comments: – The Tribunal has emphasised that the DRP should give a speaking direction after considering the merits of the case. The Ruling also commented that adequate opportunity of being heard should be given to the taxpayer by the revenue authorities before passing any order/ direction.

GAP International Sourcing India Private Limited Vs Deputy Commissioner of Income Tax (I.T.A. No. 4073/Del/2010)- Delhi bench of the Income-tax Appellate Tribunal

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0 Comments

  1. Praveen Goyal says:

    Sir,

    Please confirm that Loan on Interest given by the closely held company to a Proprietorship firm whose proprietor have more than 10% shares in the said company

    With regards,

    Praveen Goyal
    09319108536

  2. pritesh says:

    sir,
    please explain the concept of deemed dividend in a more simpler way……………..

    it was lucidly explained above but still i didn’t understand.

    how the income is arising in case of such loans??????????

    and how can it be taxed????????

    1. Sandeep Kanoi says:

      One is dividend which will cost you dividend tax and other is buy back of shares U/s. 77A by company in which case company will not have to pay any tax but share holder have to pay capital gain tax.

  3. Ajay Agarwal says:

    Whether in terms of Section 2(22)(e) of the Act deemed dividend is taxable in the hands of the shareholder or in the hands of the concern to which loan or advance has been given?

    1. Sandeep Kanoi says:

      As per provisions of Section 206 of the Companies Act, dividend can be paid by the company only to the registered shareholder and accordingly same is taxable only in the hands of registered shareholder as per deeming provisions of Section 2(22)(e) of the Act also. [CIT vs. Hotel Hiltop (2008) 217 CTR 527 (Raj.); Nulon India Ltd. vs. ITO (2007) 12 SOT 260 (Del.); ACIT vs. Bhaumik Colour Pvt. Ltd. ITA No. 5030/Mum/04 dated 19-11-2008].

  4. Jnandev Kamath says:

    Can a sec 25 company be converted to a shareholfing company? What are the procedures in companies act and Income Tax act to be abided by?

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