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I-T - Whether if assessee withdraws claim to certain deductions and that results in extra income being offered for settlement, it tends to fulfill conditions of Sec 245C(1) - YES: HC

By TIOL News Service

NEW DELHI, AUG 18, 2017: THE issue before the Bench is - Whether if the assessee withdraws its claim to certain deductions and that results in extra income being offered for settlement, the requirements of Section 245C(1) stand fulfilled. YES is the verdict.

Facts of the case

The Assessee - a step-down subsidiary of the Norway based Telenor Group, was engaged in the business of both GSM as well as national and international long distance services (ILD/NLD business). It was transferred to Telenor India as a going concern on a 'Slump Sale' basis on the completion date as mentioned in the Business Transfer agreement (BTA). The Assessee filed return which was picked up for scrutiny and a notice u/s 143(2) was issued. A reference was made to the TPO who passed an order proposing a transfer pricing adjustment on account of Guarantee Fees. The Assessee went before the DRP. The Assessee's returns for AYs 2013-14 to 2016-17 were also pending. During the pendency, the Assessee filed a settlement application before the ITSC u/s 245C (1). The ITSC held that the Assessee had failed to fulfil the requirement of Section 245C before the AO.

In a writ, the High Court held that,

++ the ITSC was of the view that since what was being offered by the Assessee to tax before it were the amounts which were earlier claimed in the returns filed before the AO as deductions but were now sought to be withdrawn, 'there are no fresh issues or incomes being offered for tax which have not been declared before the AO'. In the considered view of the Court, the approach of the ITSC appears to be erroneous;

++ no doubt, Section 245C (1) requires the applicant to make a full and true disclosure of the income which has not been disclosed before the AO and the manner in which said income has been earned but this, by no means, requires the applicant to demonstrate that there is a fresh source of income which was not earlier disclosed by the Assessee. It can happen that an income which was not earlier offered to tax, like an excessive claim for depreciation, is now withdrawn and, as a result, income is offered to tax before the ITSC. This will satisfy the requirement of Section 245C (1) that what was not earlier disclosed before the AO is now offered to tax.

(See 2017-TIOL-1581-HC-DEL-IT)


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