CLESTRA LIFE SCIENCES P.LTD, MUMBAI V. ACIT CEN CIR 40, MUMBAI

CO 127/MUM/2013

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0184 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 02-06-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 27-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J C O NO MUM ARISING
• Assessee Lawyers: RAMESH KHATIWALA
• Keywords: Transfer pricing; International transaction; Additional evidence; Reassessment proceedings
• Section: 143(3); 132; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI , BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. : 4082/MUM/2012 (ASSESSMENT YEAR: 2002-03) ITA NO. : 4083/MUM/2012 (ASSESSMENT YEAR: 2003-04) ACIT CC-40, ROOM NO. 653, 6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI -400 020 VS CLESTRA LIFE SCIENCES PVT LTD (FORMERLY KNOWN AS M/S BRAHMA DRUGS PVT LTD), 9 TH FLOOR, 907, FILIX, COMMERCIAL COMPLEX OPP. ASIAN PAINTS, LBS MARG, MUMBAI -400 078 .: PAN: AAACB 5795 L (APPELLANT) (RESPONDENT) APPELLANT-ASSESSEE BY : SHRI RAMESH KHATIWALA RESPONDENT REVENUE BY : SHRI PREMANAND J ! . 127//2013 C.O. NO. 127/MUM/2013 ARISING OUT OF ITA NO. : 4082/MUM/2012, AY 2002-03 ! . 128//2013 C.O. NO. 128/MUM/2013 ARISING OUT OF ITA NO. : 4083/MUM/2012, AY 2003-04 CLESTRA LIFE SCIENCES PVT LTD, 9 TH FLOOR, 907 FIX COMMERCIAL COMPLEX, OPP ASIAN PAINTS, LBS RD. BHANDUP, MUMBAI -400 078 VS ACIT CC-40, MUMBAI -400 020 (CROSS OBJECTOR) ! (RESPONDENT) ! CROSS OBJECTOR-ASSESSEE BY : : ) * +, - SHRI RAMESH KHATIWALA RESPONDENT REVENUE BY : ) ./ 0 SHRI PREMANAND J .- 1 23 /DATE OF HEARING : 09-12-2014 456 1 23/ DATE OF PRONOUNCEMENT : 11-12-2014 / / / /* ** * O R D E R PER BENCH : CLESTRA LIFE SCIENCES PVT LTD (FORMERLY KNOWN AS M/S BRAHMA DRUGS PVT LTD) ITAS 4082 & 4083/MUM/2012 COS 127 & 128/MUM/2013 2 THESE ARE APPEALS FILED BY THE REVENUE & CROSS OBJE CTION BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) FOR THE ASSESS MENT YEAR 2002-03 & 2003-04. 2. COMMON GRIEVANCE OF THE REVENUE IN BOTH THE YEAR S RELATE TO DISALLOWANCE OF ADVERTISEMENT AND MARKETING EXPENDI TURE. THE REVENUE HAS ALSO TAKEN GROUND WITH REGARD TO VIOLAT ION OF RULE 46A. 3. IN THE CROSS OBJECTION, THE ASSESSEE HAS TAKEN G ROUND OF VALIDITY OF REOPENING U/S 147. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. 5. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADING OF PHARMACEUTICAL PRODUCTS. ON THE BASI S OF SEARCH EFFECTED U/S 132 ON M/S GENOM BIOTECH PVT LTD (GBPL ), COMPLETED ASSESSMENT WAS REOPENED BY ISSUE OF NOTICE U/S 143( 2) R.W.S. 147 AND THE AO DISALLOWED EXPENDITURE INCURRED ON ADVERTISE MENT ON THE BASIS OF REPORT OF DDIT (INV.). 6. BY IMPUGNED ORDER THE CIT(A) DELETED DISALLOWANC E AFTER HAVING A FOLLOWING OBSERVATION: 7.2 THE AO WHILE COMPLETING THE RE-ASSESSMENT U/S 1 43(#) READ WITH SECTION 147 DISALLOWED ADVERTISEMENT AND MARKETING EXPENSES RS. 1,14,34,498/- REIMBURSED TO OSIAN TRADI NG LTD., CYPRUS WITH THE OBSERVATION, THE APPELLANT IN ITS LETTER HAS ASKED THE AO TO CONSIDER ALL THE ACCOMPANIMENTS AND SUBMISSIONS MADE DURING THE COURSE OF REGULAR ASSES SMENT FOR THE PURPOSE OF THE CURRENT ASSESSMENT PROCEEDINGS. THE SUBMISSION OF THE APPELLANT CANNOT BE ACCEPTED AS T HERE IS NOTHING ON THE RECORD TO PROVE THAT THE ADVERTISEME NT EXPENSES CLAIMED BY THE APPELLANT WERE GENUINE. HENCE THE ADVERTISEMENT EXPENSES TO TUNE OF RS. 1,14,34,498/- IS ADDED TO THE TOTAL INCOME OF THE APPELLANT. 7.3 BEFORE ME, THE APPELLANT SUBMITTED THAT NO OPPO RTUNITY WAS AFFORDED TO THE APPELLANT TO FURNISHED ANY DETAILS REQUIRED BY THE AO. THIS IS SO, AS ALREADY SUBMITTED, THE 143(2 ) FIXING THE HEARING ON NOVEMBER 09, 2009 DID NOT REACH THE APPE LLANT AS THE NOTICE DATED NOVEMBER 03, 2009 HAD BEEN SENT ON THE WRONG ADDRESS AND HAD BEEN RETURNED REFUSED. THIS CLESTRA LIFE SCIENCES PVT LTD (FORMERLY KNOWN AS M/S BRAHMA DRUGS PVT LTD) ITAS 4082 & 4083/MUM/2012 COS 127 & 128/MUM/2013 3 SUBMISSION AND FACT IS CORRECT AS IT HAS BEEN DEALT WITH IN PARA 3, ABOVE, OF THIS APPELLATE ORDER. IT WAS VEHEMENTL Y ARGUED BY THE APPELLANT THAT THE DISALLOWANCE OF ADVERTISEMEN T AND THE MARKETING EXPENSES IS INCORRECT AND INVALID FOR THE FOLLOWING AMONGST OTHER REASONS:- (A) THE ADVERTISEMENT AND MARKETING EXPENSES WERE REIMBURSED THROUGH PROPER BANKING CHANNEL. THE CLAI MS WERE MADE THROUGH VALID INVOICES AND OTHER SUPPORTING DO CUMENTS WERE EVER NECESSARY. THE SAME VERIFIED BY THE BANKE R WHO PERMITTED THE REMITTANCE. (B) IN THE COURSE OF ORIGINAL ASSESSMENT PROCEEDIN GS YOUR APPELLANT PRODUCED THE FOLLOWING DOCUMENTS BEFORE T HE AO FOR HIS VERIFICATION: (1) COPY OF AGREEMENT WITH DISTRIBUTOR; (2) STATEMENT OF ADVERTISEMENT AND MARKETING EXPENSES SHOWING DETAILS OF BILLS, NAME OF THE DISTRIBUTORS, AMOUNT AND DATE OF PAYMENT; (3) INVOICE OF DISTRIBUTOR SHOWING NATURE OF ADVERTISEMENT EXPENSES, (4) SUPPORTING MATERIALS SUCH AS CUTTING OF NEWSPAPER, CUTTING OF MAGAZINE, PHOTO OF AUTO TRANSPORT, ETC. (5) BANKS OUTWARD REMITTANCE ADVICE. (6) TRANSFER PRICING AUDIT REPORT DATED OCTOBER 22, 2002 WAS FILED ALONG WITH THE RETURN OF INCOME. (C) THE ABOVE MATERIAL WAS CONSIDERED BY THE TRANSF ER PRICING OFFICER WHEN REFERENCE WAS MADE TO HIM BY T HE THEN ASSESSING OFFICER. THE ADDL. CIT (TRANSFER PRIC ING) (1), MUMBAI IN HIS ORDER DATED JANUARY 25, 2005 PAS SED U/S 92CA(3) HAS EXAMINED ALL MATERIAL RELATING TO TH E CLAIM OF EXPENDITURE INCURRED IN FOREIGN CURRENCY PERTAINING TO INTERNATIONAL TRANSACTION WITH COMPAN IES IN WHICH SHRI BINOD SINGH HAD A SUBSTANTIAL INTEREST NAMELY OSIAN TRADING LTD., TRIGRAM GMBH, TRIGRAM LT D AND MADE NO DISALLOWANCE FROM THE EXPENSE CLAIMED A S REIMBURSED. IT WAS FOR THIS REASON AND FACT THAT WH ILE COMPLETING THE ORIGINAL ASSESSMENT U/S 14(3) VIDE O RDER DATED FEBRUARY 28, 2005. THE THEN AO MADE NO ADDITI ON OR DISALLOWANCE UNDER THIS ACT. (D) THE AO HAS NOT PLACED ANY MATERIAL OR EVIDENCE O N RECORD OR CONFRONTED THE APPELLANT WITH SUCH MATERI AL TO SUPPORT HIS FINDING THAT THE REIMBURSEMENT OF ADVERTISEMENT AND MARKETING EXPENSES WAS BOGUS. IT IS A SETTLED RULE AND LAW, BASED ON PLETHORA OF JUDICI AL DECISIONS OF APEX COURT AND HIGH COURTS THAT APPARE NT STATE OF AFFAIRS IS REAL UNLESS CONTRARY IS PROVED AND BURDEN OF PROVING LIES ON THE PERSON WHO ASSERTS/AL LEGES IT. THIS ONUS HAS NOT BEEN DISCHARGED BY THE AO. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND THE MATERIAL ALREADY ON RECORD, THE IMPUGNED ADDITION/DISALLOWANCE MADE ON SURMISE, CONJECTURE A ND MIS-CONCEIVED FACTS CANNOT BE SUSTAINED IN LAW. CLESTRA LIFE SCIENCES PVT LTD (FORMERLY KNOWN AS M/S BRAHMA DRUGS PVT LTD) ITAS 4082 & 4083/MUM/2012 COS 127 & 128/MUM/2013 4 7.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND THE ORDER OF THE AO. IT IS AN ADMITTED FACT ON R ECORD THAT THE SAID ADVERTISEMENT AND MARKETING EXPENSES DETAILS WERE FILED DURING THE ORIGINAL ASSESSMENT A S WELL AS BEFORE ADDITIONAL CIT (TRANSFER PRICING) (1), MUM BAI. AFTER EXAMINATION AND VERIFICATION OF EXPENSES CLAI MED AS REIMBURSEMENT, BOTH, THE THEN AO AND TPO ACCEPTED THE CLAIM OF THE APPELLANT AND NO ADDITION / DISALLOWANCE WAS MADE EITHER IN THE TRANSFER PRICIN G ORDER DATED JANUARY 25, 2005 PASSED U/S 92CA(3) OR IN THE ORIGINAL ASSESSMENT ORDER U/S 143(3) DATED FEBRUARY 28, 2005. AT THE SAME TIME, THE AO HAS NOT PLACED ANY MATERIAL OR EVIDENCE EITHER ON RECORD OR MENTIONED IN THE IMPUGNED ASSESSMENT ORDER TO SUPPO RT THAT THE EXPENSES ARE BOGUS. A MERE INTIMATION FROM THE INVESTIGATION WING CANNOT BE BASIS FOR ANY ADDITION . CONSEQUENTLY, I HAVE NO HESITATION IN AGREEING WITH THE APPELLANT THAT THE IMPUGNED ADDITION / DISALLOWANCE HAVE BEEN MADE ON SURMISED, CONJECTURE AND MIS- CONCEIVED FACTS. ACCORDINGLY, THE DISALLOWANCE OF RS . 1,14,37,498/- IS DELETED AND THE AO IS DIRECTED TO MODIFY THE ASSESSMENT ORDER BY GIVING THE SAID RELI EF TO THE APPELLANT. HOWEVER, THE CIT(A) CONFIRMED THE REOPENING U/S 147 . 7. AGAINST THE ABOVE ORDER OF THE CIT(A), THE REVEN UE ARE IN APPEAL BEFORE US AND THE ASSESSEE HAS ALSO RAISED CROSS OB JECTION ALLEGING VALIDITY OF REOPENING U/S 147. 8. LD. DR ARGUED THAT IN THE COURSE OF APPELLATE PR OCEEDINGS, THE CIT(A) ACCEPTED THE ADDITIONAL EVIDENCE IN CONTRAVE NTION OF RULE 46A WITHOUT GIVING OPPORTUNITY TO THE AO. FOR MERIT OF ADDITION, HE RELIED ON THE ORDER OF THE AO. LD. DR WAS SPECIFICALLY ASK ED BY THE BENCH TO PIN POINT THE DOCUMENTS RELIED ON BY THE LD. DEPART MENTAL REPRESENTATIVE IN VIOLATION TO RULE 46A. FOR THIS P URPOSE, LD. DR INVITED OUR ATTENTION TO THE DOCUMENTS MENTIONED IN SUB-PARA (A) TO (D) OF PARA 7.3 OF THE CIT(A) ORDER. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS GONE THROUG H THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THA T THE DOCUMENTS HIGHLIGHTED BY LD. DR IN SUPPORT OF HIS CONTENTION THAT THERE WAS CLESTRA LIFE SCIENCES PVT LTD (FORMERLY KNOWN AS M/S BRAHMA DRUGS PVT LTD) ITAS 4082 & 4083/MUM/2012 COS 127 & 128/MUM/2013 5 VIOLATION OF RULE 46A, WE FOUND THAT THESE DOCUMENT S COMPRISES OF COPIES OF AGREEMENT WITH DISTRIBUTOR, STATEMENT OF ADVERTISEMENT AND MARKETING EXPENSES SHOWING DETAILS OF BILLS, NAME O F THE DISTRIBUTORS, AMOUNT AND DATE OF PAYMENT. WE FOUND THAT ALL THESE DOCUMENTS WERE SUBMITTED BY THE ASSESSEE IN THE COURSE OF ORIGINAL ASSESSMENT, WHEREIN THE ASSESSMENT WAS FRAMED U/S 143(3). BEFOR E AO DURING REASSESSMENT PROCEEDINGS ASSESSEE VIDE HIS LETTER I NFORMED THAT ALL THESE DOCUMENTS WERE FURNISHED BEFORE AO AND TPO DU RING ORIGINAL ASSESSMENT PROCEEDINGS AND BY CONSIDERING THE SAME VIDE ORDER DATED 25 TH JANUARY, 2005 PASSED U/S 92CA(3) HAS EXAMINED ALL MATERIALS RELATING TO CLAIM OF EXPENDITURE OF ADVERTISEMENT. SIMILARLY AO VIDE HIS ORDER DATED 23 RD FEBRUARY, 2005 ADVANCED ASSESSEES CLAIM AFTER EXAMINING ALL THESE DOCUMENTS. 10. THUS, IT IS CLEAR THAT ALL THESE DOCUMENTS, AS PIN POINTED BY DR WAS NOT ADDITIONAL DOCUMENTS SO AS TO INVOKE THE PR OVISIONS OF SECTION 46A. 11. ON MERITS, WE FOUND THAT CLAIM OF SUCH ADVERTIS EMENT EXPENSES WERE MADE ON REIMBURSEMENT BASIS, DETAILS OF WHICH WERE PLACED BEFORE THE ORIGINAL ASSESSMENT PROCEEDINGS, COMPLET ED U/S 143(3) ON 28 TH FEBRUARY, 2005 AS WELL AS BEFORE TRANSFER PRICING OFFICER, WHO HAS ALLOWED THE ASSESSEES CLAIM VIDE HIS ORDER DATED 2 5.01.2005 PASSED U/S 93A(3). THE CIT(A) HAS ALSO RECORDED THE FINDIN G TO THE EFFECT THAT THE AO HAS NOT PLACED ANY MATERIAL OR EVIDENCE AS M ENTIONED IN IMPUGNED ASSESSMENT ORDER TO SUPPORT THAT THE EXPEN SES WERE BOGUS. THE CIT(A) OBSERVED THAT A MERE INTIMATION FROM INV ESTIGATION WING CANNOT BE BASIS FOR ANY ADDITION. THE FINDING RECOR DED BY CIT(A) IN PARA 7.2 HAS NOT BEEN CONTROVERTED, BY DEPARTMENT B Y BRINING ANY POSITIVE MATERIALS ON RECORD. ACCORDINGLY, WE DO NO T FIND ANY REASON TO CLESTRA LIFE SCIENCES PVT LTD (FORMERLY KNOWN AS M/S BRAHMA DRUGS PVT LTD) ITAS 4082 & 4083/MUM/2012 COS 127 & 128/MUM/2013 6 INTERFERE WITH THE FINDING OF CIT(A) RESULTING INTO DELETION OF ADDITION ON ACCOUNT OF ADVERTISEMENT EXPENSES. 12. ON THE BASIS OF REASONING GIVEN HEREINABOVE, WE CONFIRM THE ACTION OF CIT(A) DELETING DISALLOWANCE OF RS. 1,13, 50,833/- IN AY 2003- 04. ! ! ! ! . . . . 127 127127 127/ // / / // /2013 2013 2013 2013 : ! ! ! ! . . . . 128 128128 128/ // / / // /2013 2013 2013 2013 : C.O. NO. 127/MUM/2013 : C.O. NO. 128/MUM/2013 : 13. GROUND TAKEN IN CROSS OBJECTION REGARDING VALID ITY OF REOPENING WAS NOT PRESSED BY LD. AR, THE SAME ARE THEREFORE D ISMISSED IN LIMINI AS NOT PRESSED. 14. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AS WELL AS ASSESSEES CROSS OBJECTION FOR BOTH THE YEARS ARE D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER, 2014. SD/- SD/- ( ) ( ) (H.L. KARWA) (R.C. SHARMA) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATE: 11 TH DECEMBER, 2014 2/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A)-36, MUMBAI. CLESTRA LIFE SCIENCES PVT LTD (FORMERLY KNOWN AS M/S BRAHMA DRUGS PVT LTD) ITAS 4082 & 4083/MUM/2012 COS 127 & 128/MUM/2013 7 4) 7 ( CENTRAL)-IV , MUMBAI / THE CIT(CENTRAL)-IV, MUMBAI. 5) 8-9:2. C , THE D.R. C BENCH, MUMBAI. 6) :;<= COPY TO GUARD FILE. /*. / BY ORDER / / TRUE COPY / / [ >/ ?0 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *AB?.-... * CHAVAN, SR. PS