BRIDGE INDIA FUND,NEW DELHI vs. ACIT (INT TAX) CIRCLE-1(3)(2), MUMBAI

The second proviso to clause (a) to Rule 4(3) specifically provides discretion to the Panel to accept or reject objections as filed, BEFORE notice as postulated in Rule 5 is issued, given that Rule 5

The impugned proceedings are time-barred, having been initiated on the basis of a notice u/s.148 of the Act dated 30.06.2021. A perusal of the approval memo u/s.151 as provided to the Assessee demonstrates that Reasons Recorded have been submitted for approval by Assessing Officer from ADIT, International Tax Range 1(3), Mumbai, as well as from CIT(IT)-1, Mumbai, only on 20.04.2021, and also that approval by the said officers was granted only on 30.06.2021, which means that no valid notice u/s.148 could have been issued on 31.03.2021.

The impugned proceedings are bad in law, having been initiated under the provisions of section 147, 148, and 149 of the Act, as they stood prior to their substitution by Finance Act, 2021, and without following the mandatory procedure as laid down in section 148-A of Act, as notified from 01.04.2021 onwards.

The impugned proceedings are bad in law, being based on third party data reproduced at Pages 6 to 88 of the impugned order were never confronted to the Assessee, prior to passing of draft order dated 31.03.2022 and have been leveraged at the Assessee's back, without providing any opportunity of rebuttal.

The AO has erred in not considering any of the material placed on record, and returning perverse findings of fact at various places in the impugned order, including with regard to the false charge of the Assessee having purchased 12,00,840 shares of Odyssey during FY 2013-14 and claimed STCL, as noted by the AO at Pages 2, 5, 84, 87 & 94 of the impugned order, while he has dutifully copy-pasted but otherwise ignored:

The AO has erred in not giving provision for answer to the notice u/s.133(6) sent to Bombay Stock Exchange (BSE), at the fag end of proceedings leading to draft order dated 31.03.2022, and not stating in the impugned order whether any response was indeed received thereafter for BSE.

Brief facts of the case shows that assessee is a resident of Mauritius and foreign portfolio investor (FPI) registered with Securities and Exchange Board of India. It carries on portfolio investment activity and derives income from investment activities in the secondary market and sale securities in accordance with the regulation made by the securities and exchange board of India.

Subsequently information was received from inside Portal under CRU/VRU risk cases that assessee is one of the beneficiaries of bogus long-term capital gain/short-term capital loss pertaining to financial year 2013 – 14 in script name on the Odysseys Corporation Ltd, (listed at Bombay stock exchange vide script number 531996 and falls under penny stock category in equity/ cash market segment wherein the assessee has allegedly bought 12,00,844 shares at ₹ 157,060,202 and sold the same quantity of shares at ₹ 126,182,597 resulting into a loss of ₹ 30,877,605. Thereafter, after obtaining the necessary approvals under section 151 (1)of the Act, case of the assessee was reopened on 31/3/2021 by recording the reasons and issuing the notice on the same date.

In response to the above notice the assessee did not file any return of income. Assessee submitted its reply on 27 September 2021 stating that that assessee is making an effort to file the return of income in response to notice under section 148 of the act through e- filing portal but it is unable to file the return of income after the launch of new efiling income tax portal. Therefore assessee

As the assessee did not file any return of income, another notice under section 148 was issued on 30 June 2021. The assessee was also asked to specifically furnish details in respect of the transactions in shares for which the reopening was made. Assessee submitted part of the details on various dates. As the assessee did not submit the required details, a notice under section 133 (6) dated 14 March 2022 was issued to the Bombay stock exchange to examine the genuineness of the transaction done by the assessee. However the Bombay stock exchange did not reply to communication of AO. The assessee also raised an objection against the reopening of the assessment. The objection raised by the assessee were perused, considered by the AO but were rejected. Assessee also challenged the approval under section 151 of the act which was also rejected. Therefore the learned AO intimated that all the prescribed provisions have been followed by the assessee as per the provisions of section 147 read with section 148 of the act. A fresh notice under section 142 (1) was issued. The learned assessing officer recorded the fact of the huge short-term capital loss which was found to be suspicious on detailed investigation of the issue. The learned AO also stated that

The assessee approached the learned Dispute Resolution Panel against the draft assessment order. The learned dispute resolution panel passed an order under section 144C (5) dated 29/12/2022 and stated that that the objections filed by the assessee against the draft order is neither signed by the assessee nor his agent as prescribed under rule 4(1) of The Income Tax (Dispute Resolution Panel) Rules, 2009. The learned DRP noted that the objections are signed by Mr. A Krishnan, advocate against the draft order cannot be considered as the person who should have filed the objection before the learned Dispute Resolution Panel. Accordingly, the learned Dispute Resolution Panel did not give any direction on merits in respect of the objection filed by the assessee as they are not maintainable in the eyes of the law. Therefore in nutshell the objection filed by the assessee was held to be not maintainable.

In nutshell, the only issue before us is that the objections have been disposed of by the learned dispute resolution panel filed by the assessee which was verified by the advocate of the assessee, holding it as not maintainable and therefore confirmed the order of the learned assessing officer.

The fact shows that after the draft assessment order was passed for assessment year 2014 – 15, assessee filed objections to the draft order in form number 35A (under rule 4 (1) before the learned Dispute Resolution Panel. The objections were verified by one Mr. S Krishnan, advocate, authorized representative of the appellant on 27/4/2022 by putting his signature. The learned Dispute Resolution Panel applying rule 4 of the DRP rules held that such objection should have been filed by the person who is authorized to verify the return of income of the assessee in terms of section 140( c) of The Income Tax Act. As the same person has not verified the form

The learned authorized representative submitted that i Objections were filed by the assessee on 27 April 2022 verified by Mr. S Krishnan, Advocate by speed post which reached the office of the learned DRP. ii In response to a notice under section 142 (1) of the Act dated 26/8/2022, assessee intimated to the ld AO that the assessee has filed objection before the learned DRP by filing form number 35A. Copy of the acknowledgement dated 28/4/2022 was also submitted. iii On 13/10/2022 the learned income tax officer headquarter to DRP – 1, Western Zone , Mumbai issued a letter by way of a notice under section 144C (11) of The Income Tax Act to the assessee stating that the objection filed with the DRP on 28/4/2022 by the assessee is fixed for hearing on 21/10/2022. Assessee was directed to furnish the written submission. The assessee was also asked to submit soft copies of the status of the DRP for the last three years and the soft copies of details as per annexure attached. In the end of Assessee was asked form number 35A, grounds of appeal, statement of facts, submission in detail, synopsis of iv Further on 31/10/2022, ld DRP scheduled hearing through WebEx meeting which got concluded. During the course of hearing the assessee was asked to file synopsis for assessment year 2014-15 and 2015-16. v Assessee submitted it on 5/11/2022 by filing two worded documents giving synopsis for assessment year 2014 – 15 and 2015 – 16. vi On 9/11/2022 assessee submitted a note on taxability of capital gain arising to the resident of Mauritius from trading in shares of the listed Indian entities. vii Thereafter the learned dispute resolution panel on 29/12/2022 issued direction under section 144C (5) of the act mentioning the dates of hearing 21/10/2022 and 01/11/2022. In the directions the learned dispute resolution panel has specifically mentioned at paragraph number 3 that in response viii The learned authorized representative stated that (a) The draft order was sent to the assessee on 31/3/2022 and assessee has filed objection within 30 days on 28/4/2022. Merely because the objection in form number 35A has been signed by the advocate of the assessee, the learned dispute resolution panel could not have dismissed the objections filed on this ground only.

The learned departmental representative submitted that ii In the present case Mr. S Krishnan being an authorized representative of the appellant has verified the objections in form number 35A. iii He submitted that the form of verification categorically says that it is required to be filed by the assessee, Mr. Krishnan is merely is an authorized representative of the appellant and not an assessee therefore, even otherwise the objections filed before the learned dispute resolution panel are not maintainable. iv Rule 4 provides that objections are to be filed in person or through his agent within the specified period in form number 35A. Therefore only the assessee or his agent can file the objections. The authorized representative is not entitled to file such objections. v Learned dispute resolution panel has specifically considered by referring to provisions of section 163 of the income tax act that who is an agent. He submitted that the authorized representative who signed the form number 35A is not an agent. vi Even before the tribunal, the authority letter of Mr. Krishnan is not at all filed which even remotely vii Therefore, learned DRP is correct in dismissing the objections of the assessee. viii On the decision cited by the learned authorized representative, he submitted that the coordinate bench has incorrectly held that there is no prescription that the objection should be filed by the assessee in person. The coordinate bench has extended the definition of agent without any basis to include the chartered accountant or any other person. If such an incoherent view is taken, then anybody can file objection before the learned dispute resolution panel. Then the definition of assessee gets blurred. He specifically referred to section 2 (7) wherein assessee is defined. He submitted that the learned authorized representative also does not fall under that definition and therefore he was not entitled to file the objection on behalf of the assessee. He further submitted that when the LD DRP is not before tribunal, no directions can be given to LD DRP. ix Verification states that whatever is stated in form number 35A is ‘true to the best of information and belief” of the signatory. Such averment cannot be made by an authorized representative. Therefore, there is no infirmity in the direction passed by the learned dispute resolution panel.

We have carefully considered the rival contentions and perused the order of the learned assessing officer which is passed pursuant to the direction of the learned dispute resolution panel. Short question before us is whether the learned dispute resolution panel is correct in dismissing the objection filed in form number 35A verified by the authorized representative holding that as the directions are not verified by the assessee or its agent, the same is required to be dismissed as not maintainable without giving any direction on the merit. Admittedly in this case form number 35A was filed against the draft assessment order passed by the learned assessing officer on 31/3/2022, verified by one Mr. Krishnan, advocate, authorized representative of assessee. The letter of authority issued to Mr. S Krishnan authorizing him to file the objection before LD DRP is not produced before us.

Form number 35A is a form prescribed under Income Tax (Dispute Resolution Panel) Rules, 2009 (The DRP rules). This form prescribed verification as under:-

However, despite holding that the learned authorized representative could not have verified form number 35A, we find that DRP Rules provide that as soon as the objections are filed, notice of hearing to the eligible assessee specifying the date and place of hearing of the objection shall be issued. The learned dispute resolution panel in this case has already issued a notice to the ‘eligible assessee’. Subsequently the hearing of objections also took place. This is in terms of rule 5 – 7 of the DRP rules. Subsequently according to rule 9, the learned dispute resolution panel further called for the written submissions of the assessee which were also filed. The personal hearing was also granted to the assessee. Therefore at every stage assessee was given an impression that its objection is being considered on merit. We note that the objections were filed by the assessee on 29/4/2022. The learned dispute resolution

The decision of the coordinate bench cited before us in ITA number 5401/M/2012 and 7230/M/2011 for assessment year 2007 – 08, set-aside the issue back to the file of the learned DRP. We have carefully perused the observations made by the bench in paragraph number 9, 12 and 13 however that are not the ratio decidendi of the

Accordingly ground number B of the appeal of the assessee is allowed. All other grounds are left unadjudicated.

In the result ITA number 457/M/2023 for assessment year 2014 – 15 is partly allowed for statistical purposes.

The facts for assessment year 2015 – 16 shows that assessee challenged in ITA number 458/M/2023 assessment order passed under section 147 read with section 144C (13) dated 13/1/2023 passed by the Assistant Commissioner Of Income Tax International Taxation Circle 1 (3) (2), Mumbai also passed in pursuance of the direction of the learned dispute resolution panel dated 29/12/ 2022 wherein the learned dispute resolution panel has dismissed the objection filed by the assessee in limimine as not maintainable as form number 35A was verified by the advocate.

Accordingly appeal of the assessee for assessment year 2015 – 16 is allowed for statistical purposes.

In the result, both the appeals filed by the assessee are allowed on ground number B of those appeals for statistical purposes.

In view of our decision in both the above appeals connected stay application number 49 and 50/M/2023 filed by the assessee becomes infructuous and hence dismissed.