OXBOW ENERGY SOLUTIONS LLC,USA vs. DCIT INTERNATIONAL TAXATION - 2(2)(2), NEW DELHI

PER SAKTIJIT DEY, JM: Captioned appeal has been filed by the assessee assailing

the final assessment order dated 26.03.2021 passed under

section 144C of Income-tax Act, 1961 (for short ‘the Act’)

pertaining to assessment year 2012-13, in pursuance to direction

of learned Dispute Resolution Panel (DRP).

ITA No.574/Del/2021 AY: 2012-13

amount of Rs.26,56,35,337/- purportedly under section 69A of

the Act.

assessee is a non-resident corporate entity incorporated in United

States of America (USA). From the information generated through

Annual Information Report (AIR) of the department, it was noticed

that certain income earned by the assessee during the year was

not offered to tax. Further, form the internal system developed by

the department, viz., I-Taxnet; it was found that the assessee’s

name appears in the list of Non-Filers Monitoring System (NMS).

Meaning thereby, the assessee had not filed any return of income

for the impugned assessment year. From the system generated

information, it was noticed by the Assessing Officer that in the

year under consideration, the assessee had entered into

transaction of sale and purchase in National/Multi-commodity

exchange, amounting to Rs.27,05,30,735/- and has made foreign

remittances amounting to Rs.79,70,54,971/-. As observed by the

Assessing Officer, in absence of any details due to non-filing of

return of income, NMS notice was sent to the assessee to furnish

necessary information on financial transaction/activities made 2 | P a g e

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during the year. However, the notice remained un-complied.

Thus, ultimately, the Assessing Officer, forming a belief that

income chargeable to tax in the year under dispute has escaped

assessment, reopened the assessment under section 147 of the

Act by issuing a notice under section 148 of the Act. As alleged by

the Assessing Officer, neither the assessee complied with the

notice issued under section 148 of the Act, nor to the notice

issued under section 142(1) of the Act. Due to this reason, the

Assessing Officer issued notices under section 133(6) of the Act to

M/s DSP Merrill Lynch Ltd., M/s. City Bank Ltd. and M/s.

Bombay Stock Exchange Ltd. From the information received from

M/s DSP Merrill Lynch Ltd., which acted as a broker in respect of

share transaction entered by the assessee, the Assessing Officer

found that in the year under consideration the assessee had

remitted aggregate amount of Rs.79,70,54,971/- in three

trenches. He further found that the assessee has sold shares of

Rain Commodities and Rain Industries Ltd. held by it in demat

account with M/s DSP Merrill Lynch Ltd. for a consideration of

Rs.26,57,84,295/- on 14.11.2011, which was reflected in the

client statement of account provided by M/s DSP Merrill Lynch

Ltd. Thus, stating that out of total remittances of 3 | P a g e

ITA No.574/Del/2021 AY: 2012-13

Rs.79,70,54,971/- source of Rs.26,56,35,337/- could be

identified, whereas, the source of the balance amount of

Rs.53,14,19,634/- could not be identified, nor explained by the

assessee due to non-furnishing of details, the Assessing Officer

added back the amount of Rs.53,14,19,634/- at the hands of the

assessee by invoking the provisions of section 69A of the Act,

while framing a draft completing the assessment order to the best

of his judgment under section 144 read with section 147 and

144C(1) of the Act.

assessee raised objections before learned DRP. In course of

proceeding before learned DRP, the assessee explained the reason

for non-compliance in assessment proceeding by stating that

since it did not have any login id on the Income Tax e-filing portal,

wherein notices under section 148 and 142(1) of the Act were

issued, it could not respond to such notices.

assessee contended that during the year under consideration it

had sold 92,50,000 equity shares of certain Indian companies

through M/s. Bombay Stock Exchange for a net consideration of

Rs.26,57,84,297/- and the amount was remitted outside India. 4 | P a g e

ITA No.574/Del/2021 AY: 2012-13

The assessee submitted that the share transaction was Security

Transaction Tax (STT)- paid, hence, resultant long-term capital

gain was exempt under section 10(38) of the Act. It was

submitted by the assessee that except this transaction, the

assessee had neither made any other share transactions, nor

made any other remittances over and above Rs.26,56,35,337/-.

The assessee further submitted that the other two transactions

alleged by the Assessing Officer and subject matter of addition in

the assessment order are duplication of this transaction. To

substantiate its claim, the assessee furnished certain additional

evidences before learned DRP. After admitting the additional

evidences, learned DRP forwarded them to the Assessing Officer

for verification and furnishing the report thereon. As observed by

learned DRP, without offering any comment/observation on the

additional evidences furnished by the assessee, the Assessing

Officer simply stated that the additional evidences should not be

admitted and reiterated the stand taken in the assessment order.

After considering the submissions of the assessee in the context

of evidences brought on record, learned DRP, being convinced

that the assessee had actually made a single remittance of

Rs.26,56,35,337/-, whereas, other two amounts forming part of 5 | P a g e

ITA No.574/Del/2021 AY: 2012-13

aggregate amount of Rs.79,7054,971/- considered by the

Assessing Officer as three separate transactions, are in reality

duplication of only one transaction, deleted the addition of

Rs.53,14,19,634/- made by the Assessing Officer. While passing

the final assessment order in pursuance to the directions of

learned DRP, the Assessing Officer, though, deleted the addition

of Rs.53,14,19,634/- proposed in the draft assessment order,

however, he added the amount of Rs.26,56,35,337/- accepted in

the draft assessment order.

materials on record. Facts on record clearly reveal that based on

certain information received from M/s DSP Merrill Lynch Ltd., the

Assessing Officer found that in the year under consideration, the

assessee had made the following remittances outside India:

S. Acknowledge TAN Amount TDS TDS Nature of No. Number (Rs.) (Rs.) Rates Remittances 1. R2011013YH9B - 265784297 0 0 Sale of equity shares of BSE held for more than 1 year. 2. R2011013Y6NE - 265635337 0 0 Sale of equity shares of BSE held for more than 1 year. 3. R2011013X7JA - 265635337 0 0 Sale of equity shares of BSE held for more than 1 year.

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statutory notices, the Assessing Officer accepted the source of

Rs.26,56,35,337/-, being the consideration received from sale of

equity shares of certain companies made in M/s. Bombay Stock

Exchange, to be explained. Whereas, he treated the balance

amount aggregating to Rs.53,14,19,634/- as unexplained money

of the assessee under section 69A of the Act, while framing the

draft assessment order.

in the year under consideration, the assessee had sold

92,50,000/- shares of certain companies and received net

consideration of Rs.26,56,35,337/- after deduction of Service Tax,

STT, brokerage etc. The assessee very clearly and categorically

submitted that except the aforesaid amount, it had neither

received any other amount as alleged by the Assessing Officer,

nor has made any requirements. To substantiate such claim, the

assessee furnished the following addition evidences before learned

DRP:

i. Copy of the contract note dated 14.11.2011 issued by M/s. DSP Merrill Lynch Limited. ii. Copy of Transaction Statement issued by National Securities Depositary Limited (NSDL).

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ii. Copy of client statement of account for the period 01.04.2011 to 31.03.2012 issued by M/s. DSP Merrill Lynch Limited. iv. Copy of Form 15CB dated 15.11.2011 v. Copy of Form 15CA dated 16.11.2011

evidences to the Assessing Officer seeking his report, however, the

Assessing Officer did not offer any meaningful comment on the

merits of the evidences furnished, except stating that the

additional evidences should not be admitted. Further, in the

report, the Assessing Officer reiterated the stand taken in the

draft assessment order by stating that the transaction relating to

sale in National Commodities Exchange (NSE) of

Rs.27,05,30,735/- and foreign remittance amounting to

Rs.79,70,54,971/- still remains unexplained. After factually

verifying the materials and evidences brought on record, learned

DRP, was convinced that the only transaction made by the

assessee in the year under consideration is in relation to sale of

92,50,000 equity shares of Rain Commodities Ltd. for a

consideration of Rs.26,57,84,297/-. Except this transaction, the

assessee had neither made any other transaction, nor has

received any other amount over and above the sale consideration

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of Rs.26,57,84,297/-. Learned DRP recorded a categorical finding

that the other two transactions aggregating to Rs.53,14,19,634/-

are duplication of the single transaction made by the Assessing

Officer. Accordingly, learned DRP directed the Assessing Officer to

delete the addition of Rs.53,14,19,634/-. In this regard, the

following observations of learned DRP are of much relevance:

“2.7 The submissions have been perused along with the materials on record. In the remand report, the AO has not disputed the veracity of the documents filed by way of additional evidence and listed at para 2.4 above, Instead, the only grounds on which the AO contended that the additional evidence may not be admitted are that sufficient opportunity had been given to the assessee in the re- assessment proceedings and that the bank statement had not been provided by the assessee for reconciliation. The Panel is of the view that the documents submitted by way of additional evidence are wholly relevant to determine the transactions and hence are required to be examined. As regards the AO's reference to sale in National Commodity Exchange of Rs. 27,05,30.735/- in the abovementioned reply dated 28.01.2021, it is seen that there is no addition on this account in the draft assessment order. 2.8 There is no dispute that the assessee had undertaken sale transaction of 92,50,000 shares of Rain Commodities Limited, which resulted in net sale consideration of INR.26,57,84,297/- as reflected in Table in para 2.3 above. As per the contract note dated 14.11.2011 issued by M/s DSP Merrill Lynch Limited (viz. document at sl. No. 1 of para 2.4 above) the consideration payable to the assessee on account of the sale of 92,50,000 shares of Rain Commodities Ltd. with the trade date of 14.11.2011 and settlement no. 12154 was INR 26,57,84,297/- which was net of brokerage, service tax and STT. As per the Transaction Statement issued by NSDL (viz, document at sl. No. 2 of para 2.4 above), the sane transaction of 14.11.2011 is recorded against DSP Merrill Lynch Ltd Rolling Mkt. Lot 112154. As per the client statement of account for the period 01.04.2011 to 31 03 2012 issued by M/s. DSP Merrill Lynch Limited (viz. document at sl. no. 3 of para 2.4 above), the same transaction of 14.11.2011 stands recorded as under:

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ITA No.574/Del/2021 AY: 2012-13

Trade Date Due Date Exch. Narration Voucher Debit Credit Balance No. (Rs.) (Rs.) (Rs.) 14.11.2011 16.11.2011 BSE Settlement 2011111 265,784,297 265,784,297 Obligation 4/775/2 N/1112154 22.11.2011 22.11.2011 BSE DP charges 2011112 148,960 265,635,337 deducted 2/16/0 for Client Oxbow Carbon And Minerals LLC from total remittance 22.11.2011 22.11.2011 BSE Payment 2011112 265,635,337 00.00 Entry/BSE/ 2/61/1 /1112154 Total 265,784,297 265,784,29 7 Closing Balance 0.00 0.00

2.9 The aforesaid documents are seen to be consistent with one another and reflect the same transaction details including number of shares, trade date and sale consideration amount. The same is also reflected in Form 15CA dated 16.11.2011 and Form 15CB auditor certification dated 15.11.2011, which shows remittance of INR 26,47,84,297 on account of the said share sate transaction. The difference between the amounts reflected in sl. no. 1 and sl. no. 2 and 3 of the Table at para 2.1 above is seen to be due to Depository Participant charges of 1NR 148,960. The assessee also furnished a copy of the extract of the relevant bank statement in DRP proceedings which shows wire transfer as follows:

Date Amount ($) Description Bank Reference posted 11/22 5,062,558.62 Wire type : Wire IN Date: 111122 Time : 1239 Et 903711220172474 T r n . 2011112200172474 Seq: 06132614C9D01/304163 Account Orig: Dsp-Bse Client ID. 0012061099 SndBk: Cltibank N A ID: 0008PmtDet: 51006 Sale of Proceeds For 9250000 Shares Of Rain Commodities Ltd.

2.10 Given the above, the Panel is of the view that the same transaction bearing the same trade date, share details and sale consideration has been reported separately by Mis DSP Merill Lynch, NSDL and Bombay Stock Exchange vide documents listed in para 2.1 above. There is nothing on record to show that there are three separate transactions. it is seen that the AO has accepted the transaction with value of INR 26,56,35,33Th in the 10 | P a g e

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order without any adverse inference regarding the taxability of the same under the Act. In the light of the foregoing observations of the Panel, the AO is directed to delete the addition of the balance two transactions amounting to 1NR 53,14,19,634/- as being duplicates in the draft( assessment order.”

under challenge in the present appeal, while implementing the

directions of learned DRP, the Assessing Officer, though, deleted

the addition made of Rs.53,14,19,634/-, however, he made the

addition of Rs.26,56,35,337/-, accepted as explained in the draft

assessment order. The aforesaid action of the Assessing Officer is

totally unacceptable as he has exceeded his jurisdiction provided

under the statute. As could be seen from the observations of

learned DRP reproduced above, a clear direction was issued to

the Assessing Officer to delete the addition of Rs. 53,14,19,634/-

proposed in the draft assessment order. There is no other

direction by learned DRP. Instead of implementing the direction

of learned DRP in letter and spirit, the Assessing Officer has

attempted to overreach the direction of learned DRP by making

addition of an item of income, which was not made at the draft

assessment stage, hence, not a subject matter of dispute before

learned DRP.

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section 144C of the Act. As per sub-section (8) of section 144C,

the DRP may confirm, reduce or enhance the variation proposed

in the draft assessment order and issue necessary direction to

the Assessing Officer. Sub-section (10) of section 144C makes it

clear that every direction issued by learned DRP shall be binding

on the Assessing Officer. Sub-section (13) of section 144C

provides that after receiving the direction of learned DRP, the

Assessing Officers shall in conformity with the direction complete

the assessment without providing any further opportunity of

being heard to the assessee. The requirement of providing a

personal hearing to the assessee at the final assessment stage

has been dispensed with only for the reason that the Assessing

Officer has no other scope but to implement the direction of

learned DRP.

learned DRP is to delete the addition made in the draft

assessment order. Therefore, the clear mandate given to the

Assessing Officer by learned DRP is to restrict himself to delete

the addition of Rs.53,14,19,634/-. Whereas, the Assessing

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Officer has travelled beyond the direction given by learned DRP

and made addition of Rs.26,56,35,337/-, which he himself

accepted as explained in the draft assessment order. Thus, the

impugned assessment order has been passed in clear violation of

the directions of learned DRP. Therefore, the assessment order is

a nullity in the eyes of law as it is against the provisions

contained under sub-section (10) and (13) of section 144C of the

Act. That being the factual and legal position, we quash the final

assessment order.

come across several instances of open defiance and non-

implementation of directions issued by DRP by the Assessing

Officers. This, in our view, is a very disturbing trend and reflects

poorly on the credibility of the department and shakes the

confidence of tax payers. Therefore, it goes against the

Government’s policy of adopting taxpayer friendly approach. In

any case of the matter, the DRP is constituted by three senior

Commissioner level officers of the department and is a dispute

resolution mechanism set up by the Government under the

statute. As per the Statute, the Assessing Officer is duty-bound

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to implement the directions of the DRP. The Assessing Officer,

being a statutory authority, is bound to act in accordance with

the procedure laid down in Statute and cannot deviate. Since, we

have come across several instances of non-implementation of

directions given by the DRP to the Assessing Officers, it is high

time to take appropriate corrective measures to stem the

deficiencies. Therefore, we direct the matter to be brought to the

notice of the concerned higher Authorities so that necessary

advisory/guidelines are issued to sensitize the Assessing Officers

in the matter of implementation of directions of the DRP. We

leave the matter at this.

Order pronounced in the open court on 31st January, 2023

Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER

Dated: 31st January, 2023. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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