Cognizant (Mauritius) Limited,6Th Floor, Tower A1,Cybercity,Ebene,Mauritius v. The Deputy Commissioner Of Income Tax, International Taxation 1(1), Bsnl Building, Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on 05/04/2019Delivered on 25/06/2019 CORAM: THE HONOURABLE MR. JUSTICE K.KALYANASUNDARAM W.P.Nos. 1244 & 1245 of 2018 &W.M.P.Nos.1553 & 1554 of 2018 &W.M.P.Nos.6060 & 6061 of 2018 W.P.No.1244 of 2018 Cognizant (Mauritius) Limited,6th Floor, Tower A1,Cybercity,Ebene,Mauritius. .. Petitioner Vs. 1.The Deputy Commissioner of Income Tax, International Taxation 1(1), BSNL Building, Room No.407, Tower 1, 16, Greams Road, Chennai - 600 006. 2.Ms.Helen Ruby Jesindha, BSNL Building, Room No.407, Tower 1, 16, Greams Road, Chennai - 600 006. .. Respondents PRAYER: Writ Petition filed under Article 226 of theConstitution of India praying for issuance of a Writ ofCertiorarified Mandamus to call for the records of the firstrespondent, pertaining to the order dated 31.12.2017, on thefile of the first respondent, styled as "draft assessment order"issued for Assessment Year 2014-15, and quash the same, andconsequently direct the first respondent to pass a freshassessment order in conformity with the order bearing F.No.C-101/TPO-1, AY.2014-15, dated 31.10.2017, issued by the TransferPricing Officer (Joint Commissioner of Income Tax - TP01),Chennai. https://hcservices.ecourts.gov.in/hcservices/ W.P.No.1245 of 2018 Cognizant Technology Solutions Corporation,500, Frank W. Burr.,Boulevard, Teaneck,New Jersey,United States of America - 00766. .. Petitioner Vs. 1.The Deputy Commissioner of Income Tax, International Taxation 1(1), BSNL Building, Room No.407, Tower 1, 16, Greams Road, Chennai - 600 006. 2.Ms.Helen Ruby Jesindha, BSNL Building, Room No.407, Tower 1, 16, Greams Road, Chennai - 600 006. .. Respondents PRAYER: Writ Petition filed under Article 226 of theConstitution of India praying for issuance of a Writ ofCertiorarified Mandamus to call for the records of the firstrespondent, pertaining to the order dated 31.12.2017, on thefile of the first respondent, styled as "draft assessment order"issued for Assessment Year 2014-15, and quash the same, andconsequently direct the first respondent to pass a freshassessment order in conformity with the order bearing OrderNo.ITBA/TPO/F/92CA3/2017-18/1007519415(1), dated 01.11.2017,issued by the Transfer Pricing Officer (Assistant Commissionerof Income Tax - TPO Circle 1(1), Chennai. * * * For Petitioner in both W.Ps' : Mr.Gopal Subramanium Senior Advocate For Mr.Srinath Sridevan For Respondents in both W.Ps' : Mr.G.Rajagopalan Additional Solicitor General Assisted by Mr.Karthik Ranganathan Senior Standing Counsel for Income Tax Department * * * C O M M O N O R D E R Since these Writ Petitions raise common issues, they aredisposed of by a common order. 2. The petitioners are Companies incorporated under laws ofMauritius and United States of America respectively. Thepetitioners are the shareholders in Cognizant TechnologySolutions India Private Limited [In short "CTSIPL"]. As on31.03.2013, the Mauritius Company owned 1,39,93,649 shares andthe American Company was owning 39,60,000 shares in CTSIPL. 3. These Writ Petitions have been filed for issuance of Writof Certiorarified Mandamus to quash the draft assessment orderpassed by the respondent under Section 143 (3) read withSection 144 C(1) of the Income Tax Act, 1961, dated 31.12.2017and for a direction to pass fresh assessment in conformity withthe order bearing F.No.C-101/TPO-1, AY.2014-15, dated31.10.2017, issued by the Transfer Pricing Officer (JointCommissioner of Income Tax - TP01), Chennai and the orderbearing No.ITBA/TPO/F/92CA3/2017-18/1007519415(1),dated01.11.2017, issued by the Transfer Pricing Officer (AssistantCommissioner of Income Tax - TPO Circle 1(1), Chennai,respectively. 3. These Writ Petitions have been filed for issuance of Writof Certiorarified Mandamus to quash the draft assessment orderpassed by the respondent under Section 143 (3) read withSection 144 C(1) of the Income Tax Act, 1961, dated 31.12.2017and for a direction to pass fresh assessment in conformity withthe order bearing F.No.C-101/TPO-1, AY.2014-15, dated31.10.2017, issued by the Transfer Pricing Officer (JointCommissioner of Income Tax - TP01), Chennai and the orderbearing No.ITBA/TPO/F/92CA3/2017-18/1007519415(1),dated01.11.2017, issued by the Transfer Pricing Officer (AssistantCommissioner of Income Tax - TPO Circle 1(1), Chennai,respectively. 4. According to the petitioners, during the year 2013 CTSIPLhad substantial cash surplus, for which, there was no immediaterequirement for the Company. The buy-back of shares was in thebest interest of shareholders and hence, CTSIPL identified buy-back of shares under Section 77A of the Companies Act, 1956. 5. The petitioners would state that since all theshareholders of CTSIPL were non-residents, the buy-back had tobe done in accordance with the regulations farmed by the ReserveBank of India under the Foreign Exchange Management Act, 1999["FEMA"]. The RBI Circular on Foreign Direct Investment["FDI"], dated 02.07.2012 stipulates conditions for an IndianCompany intending to buy-back shares from non-residentshareholders. In accordance with the Circular, CTSIPLascertained valuation of its shares through SEBI registeredCategory-I Merchant Banker and the price per share of theCompany, based on the valuation undertaken using the DiscountedFree Cash Flow ["DCF"] method, was Rs.23,915.10. The Board ofDirectors of CTSIPL resolved that the shares could be bought byCTSIPL at the value of Rs.23,915/- per share under Section 77 Aof the Companies Act. 6. The petitioners would claim that CTSIPL completed thebuy-back of shares on 22.05.2013 and the non-residentshareholders received their consideration in accordance with the https://hcservices.ecourts.gov.in/hcservices/ relevant regulations under FEMA and the Companies Act. TheReserve Bank of India has accepted the said value and the FormFC-TRS was duly filed with the Authorized Dealer Bank and thesame was approved. The petitioners filed their returns of incomeon 29.09.2014 and 29.11.2014 along with the relevant TransferPrice Certificates in Form 3CEB. The Assessing Officer referredthe determination of Arms Length Price ["ALP"] for buy-back ofshares to the Transfer Pricing Authority ["TPA"] and betweenFebruary 2017 and October 2017, the Transfer Pricing Officersought for details from the petitioners and after consideringthe detailed materials submitted by the petitioners, dated18.10.2017, 27.10.2017, Transfer Pricing Officer passed an orderon 31.10.2017 stating that on perusal of documents madeavailable,"no adverse inference is drawn". 7. It is the case of the petitioners that when the matter toascertain the value of the share for the buy-back referred toTransfer Pricing Officer and the reference has been answeredunder Section 92CA (4) of the Income-tax Act, 1961 [In short"the IT Act"] the Assessing Officer is bound to pass order inconformity with the valuation arrived by the Transfer PricingOfficer. There can be no deviation, however, on 06.11.2017, thefirst respondent asked for other documents with respect to thecost of acquisition of the shares. The petitioners provided thedetails on 08.11.2017 and thereafter for a period of 45 days,the first respondent did nothing and again on 21.12.2017 soughtfor a statement from the valuer and the statement was obtainedon 22.12.2017 and on the same day, a notice was served on thepetitioners to show-cause as to why the shares should not bevalued at Rs.8,612/- and why the excess consideration over thesaid Fair Market Value not to be assessed to tax under Section56(1) of the IT Act. 8. The petitioners would claim that the AuthorizedRepresentatives of their Company replied to the show-causenotice on 26.12.2017 stating that there was no possibility ofgiving reply within the specified time and sought for reasonabletime. But, on 27.12.2017, the first respondent sent an e-mail tothe Authorized Representatives of the petitioners to attend thehearing on 28.12.2017, as a last and final opportunity. TheAuthorized Representatives appeared and placed before the firstrespondent the fact that the valuation of the shares had beenaccepted by the RBI and TPO and the Returns of the other twoshareholders had been accepted by the Department. Thepetitioners further pointed out that the CTSIPL declared theamount of money paid towards buy-back in the financialstatements and Form 3CEB and the Assessing Officer had acceptedthe value so paid. But, the impugned Draft Assessment Orderscame to be passed on 31.12.2017. 9. The impugned Draft Assessment Orders have been assailedin these Writ Petitions directly before the High Court invokingunder Article 226 of the Constitution of India, contending thatthe impugned orders have been passed in violation of theprinciples of natural justice and in contravention of Section92CA(4) of the Act. According to the petitioners, when theTransfer Pricing Officer had determined Arms Length Price inview of Section 92CA (4) of the IT Act, the first respondent hadabsolutely no power to differ from the Transfer Pricing Officer. 10. A detailed counter affidavit has been filed by the firstrespondent, primarily questioning the maintainability of thisWrit Petition. It is contended that the Writ Petition is liableto be dismissed in limini as the petitioners have an effectiveand efficacious alternative remedy under the IT Act. It isstated that the Parliament in order to encourage ForeignInvestors and to provide them with effective and quick appealremedy against the assessment orders passed by the AssessingOfficers, amended the Income Tax Act in Finance Act, 2009 byintroducing a new Section 144C. As per the said Section, theAssessing Officer will scrutinize the Income Tax Returns filedby the Foreign Companies by issuing notices under Section 142(1)and 143(2) of the IT Act. However, instead of passing theassessment order under Section 143(3) of the IT Act, theAssessing Officer passes a draft assessment order under Section144C(1) of the IT Act. If the assessees have objections to theactions proposed in the Draft Assessment Order, they areentitled to file objections before the Dispute Resolution Panel under Section 144 C of the IT Act or to file an appealagainst the final assessment order before the Commissioner ofIncome Tax (Appeals) under Section 246A of the IT Act. It isfurther stated that the powers of the Dispute Resolution Panelis wider and it can consider any objections raised before it bythe assessee. 11. In the counter, it is further stated that there was noviolation of principles of natural justice and the delay inissuing show cause notice was purely on account of delayattributable to the petitioners in producing the documents andclarification called for by the Department. The firstrespondent has given the following dates and events to sustaintheir case that there is no violation of principles of naturaljustice:-" 11. In the counter, it is further stated that there was noviolation of principles of natural justice and the delay inissuing show cause notice was purely on account of delayattributable to the petitioners in producing the documents andclarification called for by the Department. The firstrespondent has given the following dates and events to sustaintheir case that there is no violation of principles of naturaljustice:-" 12. It is alleged that though all documents sought for bythe first respondent were readily available with thepetitioners, they deliberately withheld by producing them. Thepetitioners have been dodging the Department for several monthsby evading the notices and by not filing the required documentsand the first respondent has to pass orders on or before31.12.2017 (before expiry of statutory time). The documentationfor cost of acquisition of shares and valuation report of sharesof CTS India and related documents and clarifications weresought for by the respondent on 13.04.2016 & 08.04.2016respectively, but the complete details were furnished only on08.11.2017 i.e., after lapse of 1 1/2 years. Since the valuationof shares is a complex assignment and it requires meticulous andpainstaking efforts, the first respondent took six weeks time to arrive the value of shares. Further, the first respondentsummoned and recorded the statement of Senior Executives of CTSIndia and its auditors to arrive at its conclusion beforeissuing the show-cause notice, dated 22.12.2017. 13. It is further stated that CTS India being the subsidiaryof the petitioners had not declared any dividend since 2003 inorder to avoid paying Dividend Distribution Tax ("DDT") underSection 115O of the IT Act. The only reason to buy-back theshares because of new provision introduced vide Section 115QA ofthe IT Act, viz., Buyback Distribution Tax ["BBDT"] from01.06.2013 imposing tax at 20% of the buy-back after 01.06.2013.It is alleged that with the singular intention to avoid DDT andBBDT, the petitioners had devised the dubious transaction payingexorbitant amount for the shares, so that it could take undueand unintended benefit of India - Mauritius tax treaty andthereby indulged in treaty abuse. 14. According to the first respondent, Section 46A of the ITAct is applicable only in cases where buy-back shares are forgenuine purpose. The first respondent has given the benefit ofSection 46A and Indian-Mauritius tax treaty upto the Fair MarketValue [hereinafter referred to as "FMV"], viz., Rs.7,990/- andfor the payment made over and above this amount, the firstrespondent denied both the treaty and Section 46A benefit andtaxed the same as income from other sources. It is the furthercase of the first respondent that the valuation that wasobtained for the purpose of FEMA is only applicable to RBIapplication purpose and that has no bearing of the Income Taxapplications. It is stated that Arms Length Price and FairMarket Value are different and distinct. In the valuationreport, the valuer has disclaimed that DCF valuation is only forthe purpose of RBI and shall not be used for any other purpose.For better appreciation, Rule 11UA of the Rules of the IT Act isextracted hereunder:- "11 U A - Determination of fair market value:- [(1)] For the purposes of section 56 of theAct, the fair market value of a property, other thanimmovable property, shall be determined in thefollowing manner, namely,— (a) valuation of jewellery, -(i) the fair market value of jewellery shallbe estimated to be the price which such jewellerywould fetch if sold in the open market on thevaluation date; (ii) in case the jewellery is received bythe way of purchase on the valuation date, from aregistered dealer, the invoice value of the jewellery https://hcservices.ecourts.gov.in/hcservices/ shall be the fair market value; "11 U A - Determination of fair market value:- [(1)] For the purposes of section 56 of theAct, the fair market value of a property, other thanimmovable property, shall be determined in thefollowing manner, namely,— (a) valuation of jewellery, -(i) the fair market value of jewellery shallbe estimated to be the price which such jewellerywould fetch if sold in the open market on thevaluation date; (ii) in case the jewellery is received bythe way of purchase on the valuation date, from aregistered dealer, the invoice value of the jewellery https://hcservices.ecourts.gov.in/hcservices/ shall be the fair market value; (iii) in case the jewellery is received byany other mode and the value of the jewellery exceedsrupees fifty thousand, then assessee may obtain thereport of registered valuer in respect of the price itwould fetch if sold in the open market on thevaluation date; (b) valuation of archaeological collections,drawings, paintings, sculptures or any work of art,— (i) the fair market value of archaeologicalcollections, drawings, paintings, sculptures or anywork of art (hereinafter referred as artistic work)shall be estimated to be price which it would fetch ifsold in the open market on the valuation date; (ii) in case the artistic work is receivedby the way of purchase on the valuation date, from aregistered dealer, the invoice value of the artisticwork shall be the fair market value; (iii) in case the artistic work is receivedby any other mode and the value of the artistic workexceeds rupees fifty thousand, then assessee mayobtain the report of registered valuer in respect ofthe price it would fetch if sold in the open market onthe valuation date; (c) valuation of shares and securities, - (a) the fair market value of quoted sharesand securities shall be determined in the followingmanner, namely,— (i) if the quoted shares and securities arereceived by way of transaction carried out through anyrecognized stock exchange, the fair market value ofsuch shares and securities shall be the transactionvalue as recorded in such stock exchange; (ii) if such quoted shares and securitiesare received by way of transaction carried out otherthan through any recognized stock exchange, the fairmarket value of such shares and securities shall be,—(a) the lowest price of such shares andsecurities quoted on any recognized stock exchange onthe valuation date, and (b) the lowest price of such shares andsecurities on any recognized stock exchange on a dateimmediately preceding the valuation date when suchshares and securities were traded on such stockexchange, in cases where on the valuation date there https://hcservices.ecourts.gov.in/hcservices/ is no trading in such shares and securities on anyrecognized stock exchange [(b) the fair market value of unquotedequity shares shall be the value, on the valuationdate, of such unquoted equity shares as determined inthe following manner, viz., :- the fair market value of unquoted equityshares =(A+B+C+D - L)× (PV)/(PE), where,...... " Therefore, the first respondent has to independently arrive thevaluation of shares under Rule 11UA of the Rules of IT Act. (b) the lowest price of such shares andsecurities on any recognized stock exchange on a dateimmediately preceding the valuation date when suchshares and securities were traded on such stockexchange, in cases where on the valuation date there https://hcservices.ecourts.gov.in/hcservices/ is no trading in such shares and securities on anyrecognized stock exchange [(b) the fair market value of unquotedequity shares shall be the value, on the valuationdate, of such unquoted equity shares as determined inthe following manner, viz., :- the fair market value of unquoted equityshares =(A+B+C+D - L)× (PV)/(PE), where,...... " Therefore, the first respondent has to independently arrive thevaluation of shares under Rule 11UA of the Rules of IT Act. 15. In the counter filed by the first respondent, it isfurther stated that the repatriation of surplus was converted tocapital gains through buy-back of shares under Section 46A ofthe IT Act read with the India - Mauritius Double Tax AvoidanceAgreement and the entire amount was tax free since capital gainsis tax except in India-Mauritius ["DTAA"]. This is a classiccase of 'tax avoidance mentality' and aggressive tax planningcan be deciphered from the various arrangements carried out bythe petitioner. The valuation of shares did not reveal thestatements recorded by the first respondent from Shri NavinVohra, Director, Ernst & Young, Merchant Banking Division. CTSIndia had carried out scheme as approved by the High Court ofMadras in June 2016. The valuation approved by the High Courtthat has been used in current DCF valuation carried out by thefirst respondent and by using the same Free Cash Flow estimatedin DCF valuation for FY-2019 to FY 2023, it is proved that theFair Market Value was overvalued. The following tabular columnis extracted from the counter to show that the shares wereovervalued:- 16. The first respondent used the High Court ApprovedValuation of the Scheme of Arrangement without any changes and by applying Discounted Cash Flow Method, determined valuationof shares at Rs.7,990/-. The first respondent has further statedthat income accruing to a non-resident due to treaty abuse andcolourable device needs to be looked into from the applicationof the Act, DTAA and once there is a sham transaction or a non-genuine transaction, the treaty benefits would be denied to theassessee and only the provisions of the Act would be applicable.The respondents have emphatically denied that the impugned orderis premeditated one, even though, the same Deputy Commissioner /second respondent herein, while sitting as a Assessing Officerfor CTS India raised the same issue at the assessment of CTSIndia. It is stated that the principles of res judicata / staredecisis are not applicable to the Income Tax Proceedings. TheIncome Tax Act recognises that if new information is availableto the concerned Assessing Officer, the assessment can bereopened under Section 147 / 148 of the IT Act. The firstrespondent after unearthing new information like valuationreport of the year 2016, Scheme of Arrangement as approved bythe High Court, statements of Senior Executives of CTS India andits Auditors, Financials of subsequent years, passed the DraftAssessment Order and the second respondent in her personalcapacity cannot be impleaded in view of Section 293 of the ITAct. 17. The second respondent has filed a separate counteraffidavit denying the allegations made against her and it isstated that Draft Assessment Orders have been passed in herofficial capacity, hence she cannot be impleaded in a personalcapacity in the Writ Petitions and according to the secondrespondent, she was impleaded only to browbeat her just because,she passed an adverse order against the petitioners. 17. The second respondent has filed a separate counteraffidavit denying the allegations made against her and it isstated that Draft Assessment Orders have been passed in herofficial capacity, hence she cannot be impleaded in a personalcapacity in the Writ Petitions and according to the secondrespondent, she was impleaded only to browbeat her just because,she passed an adverse order against the petitioners. 18. A detailed rejoinder was filed by the petitionersdisputing and denying the allegations made in the counteraffidavit. In the rejoinder, the petitioners reiterated thegrounds taken in the Writ Petitions and it is further statedthat the Fair Market Value and Arms Length Price are always usedin accounting parlance as synonymous and interchangeable to showthe nature of price agreed to between unrelated parties and thesubmission of the respondents that the Fair Market Value andArms Length Price are different concepts is not only anomalous,but is least expected of the Department, which is meant toadminister these provisions. 19. In the rejoinder, the petitioners have further stated,that these Writ Petitions are maintainable as the DraftAssessment Orders have been passed not based on the order ofTPO; Dispute Resolution Panel assumes jurisdiction onlyafter the Assessing Officer passes Draft Assessment Orderinconsonance with the TPO's directions; the order of theAssessing Officer is contrary to Section 46A of the IT Act and CBDT Circular No.3 of 2016. The same transaction has beenaccepted by Delhi Circle of the respondent-Department and theorder was passed in violation of principles of natural justice. 20. With regard to allegation of dragging of theproceedings, it is stated that the notice dated 28.08.2015 wasdespatched to an incorrect address and for the notice dated16.09.2015 sent through email, the Authorized representative ofthe petitioners appeared on 28.09.2015. The informations soughtfor from the petitioners through notice dated 13.04.2016 werefurnished to the respondent on 18.04.2016 and 09.05.2016 and theadditional documents were furnished on 08.11.2017, which weresought by the respondent for the first time on 06.11.2017. Thebuy-back was undertaken in strict compliance with Section 77A ofthe Companies Act, 1956. The valuation of the shares have notbeen found fault with by Reserve Bank of India or the TransferPricing Officer or by the respondent herein in her previouscapacity as an Assessing Officer of the CTSIPL. Sinceallegations have been made against the Assessing Officer, shehas to be impleaded as a party respondent. 21. In the instant case, the respondent re-opened theassessment of the petitioners on the ground that the shares wereovervalued. The first respondent held that the Fair Market Valueis to be determined under 11UA of the Rules of IT Act and thedetermination of value of shares under DCF method for thepurpose of RBI application is incorrect and passed the DraftAssessment Orders. The Cognizant (Mauritius) Limited seeksexemption in payment of income tax under India - MauritiusDouble Tax Avoidance Agreement and in the case of US CompanyRs.134,05,06,915/- has been paid as capital gain at the rate of10%, but the Revenue claims tax at the rate of 30% for thedifference paid over and above the Fair Market Value underSection 56(1) of the IT Act. 21. In the instant case, the respondent re-opened theassessment of the petitioners on the ground that the shares wereovervalued. The first respondent held that the Fair Market Valueis to be determined under 11UA of the Rules of IT Act and thedetermination of value of shares under DCF method for thepurpose of RBI application is incorrect and passed the DraftAssessment Orders. The Cognizant (Mauritius) Limited seeksexemption in payment of income tax under India - MauritiusDouble Tax Avoidance Agreement and in the case of US CompanyRs.134,05,06,915/- has been paid as capital gain at the rate of10%, but the Revenue claims tax at the rate of 30% for thedifference paid over and above the Fair Market Value underSection 56(1) of the IT Act. 22. Mr.Gopal Subramanium, learned Senior Counsel for thepetitioners has made the following submissions:-(i) The petitioners / Cognizant (Mauritius) Limited andCognizant Technology Solutions Corporation, United States ofAmerica are the shareholders of the CTSIPL. The Indian Companyhad cash surplus in the year 2013 in its commercial wisdom anddecided to buy-back of shares. Since the shareholders are non-residents, as per the Regulations issued by the RBI under theFEMA, the value of the shares were determined by appointing aSEBI registered Category-I Merchant Banker by using the DCFMethod. The entire transaction was completed on 22.05.2013 andnecessary Forms were filed before the concerned Authorities. Theincome-tax Returns of the petitioners dated 29.09.2014 &29.11.2014, were accepted by the Authorities. (ii) The character of income on buy-back of shares isundoubtedly a capital gain. Section 14 of the IT Act describes"Heads of Income" and the capital gains classified as 'E' under14 of the IT Act. Section 46A of the IT Act also states that thedifference between the cost of acquisition and the value ofconsideration received by the shareholders shall be deemed to bethe capital gain arising to such shareholders. The CentralBoard of Direct Taxes also states that sale of shares would comeunder capital gain and when the respondent admits this position,the capital gain cannot be bifurcated to bring one portion undercapital gains and the remaining income under the income fromother sources by using Section 56(1) of the IT Act. (iii) The Assessing Officer after obtaining orders from theCommissioner of Income Tax, referred the matter to the TransferPricing Officer to determine the value of shares. The TransferPricing Officer issued show-cause notices, for which, thepetitioners submitted materials and thereafter, the TransferPricing Officer found that the value per share determined atRs.23,915/- was correct and recorded a finding that "no adverseinference is drawn". The value fixed under DCF Method atRs.23,915/- was also accepted as correct by the Income TaxAuthority in Delhi. (iv) The Assessing Officer is bound to pass Assessment Orderbased on the Arms Length Price fixed by the Transfer PricingOfficer.(v) The payment made by the Company on purchase of its ownshares from the shareholders in accordance with Section 77A ofthe Companies Act would not come under dividend in view ofSection 2(22)(iv) of the IT Act. (vi) The second respondent, who was an Assessing Officer forCTSIPL raised queries for determining the value per share atRs.23,915/- and after enquiry, accepted the Income Tax Returnsubmitted by the CTSIPL. However without any other materials,the respondent issued notices contending that the value of theFair Market Value of the share was Rs.8,612/- and is attemptingto tax on the remaining amount under Section 115 QA of the ITAct. Section 115QA was inserted in the Act and came to effectfrom 01.06.2013 and this Section cannot be retrospectivelyimplemented / applied for imposing tax on the petitioners, whichtransactions had completed on 22.05.2013. (vi) The second respondent, who was an Assessing Officer forCTSIPL raised queries for determining the value per share atRs.23,915/- and after enquiry, accepted the Income Tax Returnsubmitted by the CTSIPL. However without any other materials,the respondent issued notices contending that the value of theFair Market Value of the share was Rs.8,612/- and is attemptingto tax on the remaining amount under Section 115 QA of the ITAct. Section 115QA was inserted in the Act and came to effectfrom 01.06.2013 and this Section cannot be retrospectivelyimplemented / applied for imposing tax on the petitioners, whichtransactions had completed on 22.05.2013. (vii) Though the respondent issued notice in the year 2017and the petitioners supplied relevant documents and filedreplies, the final show-cause notice was issued only on22.12.2017, but subsequently, without proving ampleopportunity, the Draft Assessment Orders dated 31.12.2017 came to be passed without any Authority of law; in violation of Ruleof law and complete failure of natural justice. (viii) Section 90 of the IT Act, a Double Taxation AvoidanceTreaty was entered between the Government of India and Mauritiusand as per the Treaty Agreement, the Cognizant (Mauritius) isentitled for exemption to tax for capital gain and when theTreaty was in force, the respondent has no authority to describethe transaction as dubious and colourable exercise and thetransaction as sham so as to bring a portion of the amount totax under Section 56(1) of the IT Act. (ix) If the Draft Assessment Order has been passed acceptingthe Arms Length Price determined by the Transfer PricingOfficer, objections can be filed by the petitioners before theDispute Resolution Panel. Since the impugned orders came to bepassed contrary to Sections 46A and 92CA of the IT Act andCircular issued by the Central Board of Direct Taxes and inviolation of the principles of natural justice, these WritPetitions are maintainable and the petitioners have no otherefficacious remedy. 23. Mr.G.Rajagopalan, learned Additional Solicitor Generalappearing on behalf of the respondents has made the followingsubmissions:-(i) These Writ Petitions are not maintainable as thepetitioners are having an efficacious alternative remedy offiling objections before Dispute Resolution Panel under Section144 C of the IT Act or to file an appeal against the finalassessment orders before the Commissioner of Income Tax (Appeals) under Section 246A of the IT Act. (ii) Before passing the Draft Assessment Orders, thepetitioners were provided with ample opportunity and only afterfiling their reply to the show- cause notices, the DraftAssessment Orders have been passed in strict compliance ofprinciples of natural justice. (iii) The Double Taxation Avoidance Agreement is applicableonly to genuine cases, but the Treaty Agreement has been abusedand the only intention of the petitioners is to avoid payment oftax. The value of shares determined on DCF method applies forRBI applications and as per Rule 11UA of the Rules of the ITAct, the respondent has to independently arrive the value ofshares. (iv) The entire transaction is dubious for the simple reasonthat even after selling the shares, the share holding has notreduced and their share holdings remain the same. (v) Tax is not imposed retrospectively under Section 115QA https://hcservices.ecourts.gov.in/hcservices/ of the IT Act, but after giving treaty exemption, the excesspayments made over and above Fair Market Value are subjected totax under Section 56(1) of the IT Act. (vi) The jurisdiction of the Assessing Officer and theTransfer Pricing Officer is distinct. The Assessing Officerunearthed new materials before issuance of show-cause notices tothe assessees to determine the correct value of the shares.Stating so, the learned Additional Solicitor General justifiedthe orders impugned herein. (iv) The entire transaction is dubious for the simple reasonthat even after selling the shares, the share holding has notreduced and their share holdings remain the same. (v) Tax is not imposed retrospectively under Section 115QA https://hcservices.ecourts.gov.in/hcservices/ of the IT Act, but after giving treaty exemption, the excesspayments made over and above Fair Market Value are subjected totax under Section 56(1) of the IT Act. (vi) The jurisdiction of the Assessing Officer and theTransfer Pricing Officer is distinct. The Assessing Officerunearthed new materials before issuance of show-cause notices tothe assessees to determine the correct value of the shares.Stating so, the learned Additional Solicitor General justifiedthe orders impugned herein. 24. Heard Mr.Gopal Subramanium, learned Senior Counsel,assisted by Mr.Srinath Sridevan, learned counsel for thepetitioners and Mr.G.Rajagopalan, learned Additional SolicitorGeneral, assisted by Mr.Karthik Ranganathan, learned SeniorStanding Counsel for Income Tax Department and perused theentire materials placed on record. 25. In the instant case, the questions arise forconsideration are whether the principles of natural justicehas been violated as alleged by the petitioners and whetherthese Writ Petitions are maintainable at this stage. 26. It is an admitted fact that the Income Tax Returns ofthe petitioners were filed on 29.09.2014 and 29.11.2014respectively. The respondent issued notice under Section 143(2)of the IT Act to the assessees dated 28.08.2015, directing themto appear for enquiry on 15.09.2015. It is the case of therespondents that no response was forthcoming from thepetitioners and hence, intimation was sent to the assessees on16.09.2015, through e-mail to file documents in favour of theirclaim. Again there was no response from the petitioners, buton 28.09.2015, the Authorized Representative of the petitionerswas called and a notice was served. It is not disputed that theassessee filed its submissions on 28.12.2015 i.e., after lapseof 91 days. A notice under Section 142(1) of the IT Act wasissued to the assessee to appear for enquiry on 18.04.2016. Itis also seen that even thereafter the petitioners herein werenot vigilant and cooperative to conclude the enquiry, whichshows their lethargic attitude to face the enquiry. The issuanceof show-cause notice and filing of reply along with thedocuments to the show-cause notice are not in dispute even inthe rejoinder affidavit filed by the petitioners. 27. The learned Senior Counsel for the petitioners reliedupon the following decisions in support of his contention thatthere was a failure in following the principles of naturaljustice and the referred paragraphs are extracted hereunder:- https://hcservices.ecourts.gov.in/hcservices/ : AIR 1955 SC 65] 27. The learned Senior Counsel for the petitioners reliedupon the following decisions in support of his contention thatthere was a failure in following the principles of naturaljustice and the referred paragraphs are extracted hereunder:- https://hcservices.ecourts.gov.in/hcservices/ : AIR 1955 SC 65] "9. In this case we are of the opinion that theTribunal violated certain fundamental rules of justicein reaching its conclusions. Firstly, it did notdisclose to the assessee what information had beensupplied to it by the departmental representative.Next, it did not give any opportunity to the companyto rebut the material furnished to it by him, and,lastly, it declined to take all the material that theassessee wanted to produce in support of its case. Theresult is that the assessee had not had a fairhearing. The estimate of the gross rate of profit onsales, both by the Income Tax Officer and the Tribunalseems to be based on surmises, suspicions andconjectures. It is somewhat surprising that theTribunal took from the representative of thedepartment a statement of gross profit rates of othercotton mills without showing that statement to theassessee and without giving him an opportunity to showthat statement had no relevancy whatsoever to the caseof the mill in question. It is not known whether themills which had disclosed these rates were situate inBengal or elsewhere, and whether these mills weresimilarly situated and circumstanced. Not only did theTribunal not show the information given by therepresentative of the department to the appellant, butit refused even to look at the trunk load of books andpapers which Mr Banerjee produced before theAccountant-Member in his chamber. No harm would havebeen done if after notice to the department the trunkhad been opened and some time devoted to see what itcontained. The assessment in this case and in theconnected appeal, we are told, was above the figure ofRs 55 lakhs and it was meet and proper when dealingwith a matter of this magnitude not to employunnecessary haste and show impatience, particularlywhen it was known to the department that the books ofthe assessee were in the custody of the Sub-DivisionalOfficer, Narayanganj. We think that both the IncomeTax Officer and the Tribunal in estimating the grossprofit rate on sales did not act on any material butacted on pure guess and suspicion. It is thus a fitcase for the exercise of our power under Article 136." (ii) Mohinder Singh Gill Vs. The CEC [(1978) 1 SCC 405] "62. So let us examine them each. Speed in actionversus soundness of judgment is the first dilemma.Punnuswami has emphasised what is implicit in Article 329(b) that once the process of election has started,it should not be interrupted since the tempo may slowdown and the early constitution of an electedparliament may be halted. Therefore, think twicebefore obligating a hearing at a critical stage when aquick re-poll is the call. The point is well taken. Afair hearing with full notice to both or others maysurely protract; and notice does mean communication ofmaterials since no one can meet an unknown ground.Otherwise hearing becomes hollow, the right becomes aritual. Should the cardinal principle of “hearing” ascondition for decision-making be martyred for thecause of administrative immediacy? We think not. Thefull panoply may not be there but a manageable minimummay make-do. 329(b) that once the process of election has started,it should not be interrupted since the tempo may slowdown and the early constitution of an electedparliament may be halted. Therefore, think twicebefore obligating a hearing at a critical stage when aquick re-poll is the call. The point is well taken. Afair hearing with full notice to both or others maysurely protract; and notice does mean communication ofmaterials since no one can meet an unknown ground.Otherwise hearing becomes hollow, the right becomes aritual. Should the cardinal principle of “hearing” ascondition for decision-making be martyred for thecause of administrative immediacy? We think not. Thefull panoply may not be there but a manageable minimummay make-do. 63. In Wiseman v. Borneman [(1967) 3 All ER 1945]there was a hint of the competitive claims of hurryand hearing. Lord Reid said: “Even where the decisionhas to be reached by a body acting judicially, theremust be a balance between the need for expedition andthe need to give full opportunity to the defendant tosee material against him” (emphasis added). We agreethat the elaborate and sophisticated methodology of aformalised hearing may be injurious to promptitude soessential in an election under way. Even so, naturaljustice is pragmatically flexible and is amenable tocapsulation under the compulsive pressure ofcircumstances. To burke it altogether may not be astroke of fairness except in very exceptionalcircumstances. Even in Wiseman where all that wassought to be done was to see if there was a primafacie case to proceed with a tax case where,inevitably, a fuller hearing would be extended at alater stage of the proceedings, Lord Reid, Lord Morrisof Borth-y-Gest and Lord Wilberforce suggested “thatthere might be exceptional cases where to decide uponit ex parte would be unfair, and it would be the dutyof the tribunal to take appropriate steps to eliminateunfairness” (Lord Denning, M.R., in Howard v. Borneman[(1974) 3 WLR 660] summarised the observations of theLaw Lords in this form). No doctrinaire approach isdesirable but the court must be anxious to salvage thecardinal rule to the extent permissible in a givencase. After all, it is not obligatory that counselshould be allowed to appear nor is it compulsory thatoral evidence should be adduced. Indeed, it is noteven imperative that written statements should becalled for. Disclosure of the prominent circumstancesand asking for an immediate explanation orally orotherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgentmeeting with the concerned parties summoned at anhour's notice, or in a crisis, even a telephone call,may suffice. If all that is not possible as in thecase of a fleeing person whose passport has to beimpounded lest he should evade the course of justiceor a dangerous nuisance needs immediate abatement, theaction may be taken followed immediately by a hearingfor the purpose of sustaining or setting aside theaction to the extent feasible. It is quite on thecards that the Election Commission if pressed bycircumstances, may give a short hearing. In any view,it is not easy to appreciate whether before furthersteps got under way he could not have afforded anopportunity of hearing the parties, and revoke theearlier directions. We do not wish to disclose ourmind on what, in the critical circumstances, shouldhave been done for a fairplay of fair hearing. This isa matter pre-eminently for the Election Tribunal tojudge, having before him the vivified totality of allthe factors. All that we need emphasize is that thecontent of natural justice is a dependent variable,not an easy casualty." (iii) S.L.Kapoor vs. Jagmohan [(1980) 4 SCC 379]"17. Linked with this question is the questionwhether the failure to observe natural justice does atall matter if the observance of natural justice wouldhave made no difference, the admitted or indisputablefacts speaking for themselves. Where on the admittedor indisputable facts only one conclusion is possibleand under the law only one penalty is permissible, thecourt may not issue its writ to compel the observanceof natural justice, not because it approves the non-observance of natural justice but because courts donot issue futile writs. But it will be a perniciousprinciple to apply in other situations whereconclusions are controversial, however, slightly, andpenalties are discretionary." (iv) Institute of Chartered Accountants Vs. L.K.Ratna[(1986) 4 SCC 537] "Chartered Accountants Act, 1949 - Sections 21 and22-A and Regulation 14 of the Regulations framed underthe Act - Enquiry - Hearing - Natural Justice -Delinquent member of Institute of CharteredAccountants of India - Entitled to be afforded anopportunity of hearin