Income Tax Appellate Tribunal (ITAT), Chennai bench consisting of Mahavir Singh, Vice President and G Manjunatha, Accountant Member upheld order against Cognizant Technology as payment towards buyback of shares not genuine.
M/s.Cognizant Technology Solutions India Ltd. is engaged in the business of software development filed its return of income for the AY 2014-15 on 29.11.2014, which was subsequently revised on 07.10.2015. During the financial year relevant to the AY 2014-15, the assessee has purchased 9,16,133 shares from its shareholder M/s.Congizant (Mauritius) Ltd. @ Rs.23,915/- per share (of face of Rs.10/- each) and paid consideration amounting to Rs.2190,93,20,625/-. The assessee had purchased 2,59,253 shares from M/s.Cognizant Technology Solutions Corporation, USA. At Rs.23,915/- per share and paid consideration amounting to Rs.620,00,35,495/-. The assessee had also purchased 16,709 shares from M/s. Market RX Inc. USA and 11,873 shares from M/s.CSS Investments LLC, USA and paid consideration amounting to Rs.39,95,95,735/- and Rs.28,39,42,795/- respectively.
The case has been taken up for scrutiny assessment and during the course of assessment proceedings, several hearings were held by the AO and the assessee furnished necessary information relating to buy back of shares from its shareholders. However, with respect to the buyback of shares, the AO had accepted the explanation of the assessee and no adjustment was made to the total income.
The case has been, subsequently taken up for revision proceedings by the Commissioner of Income and a show cause notice u/s.263 was issued. The assessee had challenged notice issued u/s.263 of the Act, before the Hon’ble Madras High Court. The said Writ Petition was dismissed by the Madras High Court. The assessee thereafter challenged the single judge order of the Madras High Court before a Division Bench of the Madras High Court. In compliance with the directions of the High Court, the assessee filed its Written Submissions and contented that the assessment order passed by the AO, is neither erroneous nor prejudicial to the interest of the revenue and thus, the CIT does not have jurisdiction to set aside the assessment order u/s.263.
The Tribunal held that “the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue and thus, the CIT has rightly exercised his jurisdictional powers and set aside the assessment order passed by the AO u/s.143(3) dated 31/12/2016. Hence, we are inclined to uphold the order of the CIT and dismiss the appeal filed by the assessee.”
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