2023 (10) TMI 703 - HC - Income Tax

Powers of Income Tax Settlement Commission to examine issues - obligation to pay tax amounting to Rs. 10 lakhs or above not met - ability to examine issues concerning transfer pricing - HELD THAT - As petitioner to the effect that it has transferred its business and that since then, it has not engaged in any business activity requires to be examined as if the business activity had stopped, then certainly the petitioner cannot possibly carry forward cumulative losses and depreciation coupled with the fact that the petitioner has paid by way of additional tax an amount equivalent to Rs. 1,41,44,457/-. Given this position, the Commission in its new avatar i.e., Interim Board, would have to examine whether the petitioner meets the threshold criteria prescribed u/s 245C(1)(ia)(B)(ii) of the Act. Ground which persuaded the Commission not to entertain the petitioner s application that it was not vested with powers concerning the TP issues does not survive any longer as the petitioner on its own showing has accepted the upward adjustment made by the TPO - we are of the opinion that the matter requires re-examination by the Commission now, the Interim Board . Accordingly, the impugned order is set aside with a direction to the Interim Board to re-examine the application filed by the Petitioner, albeit on merits, for the periods in issue i.e., AYs 2012-13 to 2016-17.

Summary

Issues Involved:
The judgment deals with the rejection of an application by the Income Tax Settlement Commission under Section 245D(2C) of the Income Tax Act, 1961. The principal issues include misdirection in law leading to rejection of the application, inability to examine transfer pricing issues, and the closure of the petitioner's business.

Misdirection in Law and Rejection of Application:
The petitioner's grievance was that the Commission misdirected itself in law by rejecting the application. The rejection was based on two grounds: firstly, the obligation to pay tax amounting to Rs. 10 lakhs or above was not met, and secondly, the Commission lacked the power to examine transfer pricing issues under Chapter X of the Act. The petitioner argued that it had deposited additional tax and offered to withdraw excessive deductions, supporting the viability of the application. Documents such as audited financial statements and evidence were submitted to demonstrate the closure of the business and inability to claim certain benefits.

Transfer Pricing Issues and Business Closure:
The Commission concluded that it could not deal with transfer pricing issues falling under Chapter X of the Act as it was a code in itself. However, the petitioner had transferred its business to another entity and ceased business activities since 2014-15. The Transfer Pricing Officer had made upward adjustments for certain transactions, which were accepted by the petitioner. The Commission's decision not to entertain the application based on transfer pricing issues was no longer valid as the petitioner had accepted the adjustments made.

Re-Examination by the Interim Board:
The High Court set aside the impugned order and directed the Interim Board to re-examine the petitioner's application on its merits for the relevant assessment years. The Interim Board was instructed to assess whether the petitioner met the threshold criteria and to rule on the merits without being influenced by previous observations. The writ petition was disposed of accordingly.