M/S. JEFFERIES INDIA P. LTD., MUMBAI V. DY CIT,CIRCLE-4(3)(1), MUMBAI

CO 151/MUM/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4774 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-04-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 07-12-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Wholly owned subsidiary
• Section: 143(3); 244A; 142(1); 143(2); 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, JM AND GAGAN GOYAL, AM आयकर अपील सं/ I.T.A. No.457/Mum/2021 (निर्धारण वर्ा / Assessment Year: 2014-15) DCIT, Cir 4(3)(1) Room No.649, 6 th Floor, Aayakar Bhavan, M. K. Road, Mumbai-400020. बिधम/ Vs. M/s. Jefferies India Pvt. Ltd. 42 & 43, 2 North Avenue, Bandra-Kurla Complex, Bandra (E), Mumbai- 400051. & Cross Objection No.151/Mum/2021 आयकर अपील सं/ I.T.A. No. 457/Mum/2021 (निर्धारण वर्ा / Assessment Year: 2014-15) M/s. Jefferies India Pvt. Ltd. 42 & 43, 2 North Avenue, Bandra-Kurla Complex, Bandra (E), Mumbai- 400051. बिधम/ Vs. DCIT, Cir 4(3)(1) Room No.649, 6 th Floor, Aayakar Bhavan, M. K. Road, Mumbai-400020. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCJ7850R (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) सुनवाई की तारीख / Date of Hearing: 24/02/2022 घोषणा की तारीख /Date of Pronouncement: 11/04/2022 आदेश / O R D E R PER AMARJIT SINGH, JM: The Revenue as well as assessee have filed the above mentioned appeal as well as cross-objection against the order dated 05.02.2020 passed by the Commissioner of Income Tax (Appeals)-22, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2014-15. Revenue by: Shri Achal Sharma Assessee by: Shri M.P. Lohia/Nikhil Tiwari ITA No. 457/Mum/2021 C.O. No.151/Mum/2021 A.Y.2014-15 2 ITA. NO.457/Mum/2021 2. The Revenue has filed the present appeal against the order dated 05.02.2020 passed by the Commissioner of Income Tax (Appeals)-22, Mumbai relevant to the A.Y.2014-15. 3. The revenue has raised the following grounds: - “1. On the facts of the case and in law the Ld. CIT (A) has erred in deleting the addition on account of estimated income of Rs.7,10,84,339/- and other income of 18,69,92,012/- in addition to the returned incomes. 61,74,110/-.” 2. “On the facts of the case and in law the Ld. CITA) has erred in confirming that the Assessing Officer has not provided sufficient opportunity of being heard to the appellant before rejecting books of accounts and the Ld. CIT(A) has erred in rejecting the fact, in the findings of the AO that the book result of the appellant is not correct.” 3. “On the facts of the case and in law the Ld. CIT{A) has failed to appreciate that the assessee had failed to furnish the details and books of accounts during the assessment proceedings as well as the remand proceedings” 4. “The appellant craves leave to amend or alter any ground or add new ground which may be necessary.” 4. The brief facts of the case are that the assessee filed its return of income on 31.10.2014 declaring total income to the tune of Rs.61,74,410/- for the A.Y.2014-15. The case was selected for scrutiny under CASS. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the ITA No. 457/Mum/2021 C.O. No.151/Mum/2021 A.Y.2014-15 3 assessee. The assessee company was engaged in the business of providing merchant banking and investment advisory services to investors, corporate and associated entities, stock broking services to domestic and foreign institutional investors and principle transaction in securities. On verification, it was found that the expenses claimed in the relevant assessment year’s P & L Account was very excessive in comparison preceding year. There was no material change in the business. There was no justification for increase expenditure. In the absence of detail, documents, confirmations for the expenses incurred and also the sales recorded in the books, non-production of books of accounts etc, to prove genuineness and correctness of the profits shown in the return filed, the book results were not found reliable and accordingly rejected by invoking provisions of Section 145(1) & (3) of the Act. The expenses were estimated to the extent of 10% of the profit and accordingly the addition was made and the total income of the assessee was assessed to the tune of Rs.26,42,51,360/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee but the revenue was not satisfied, therefore, the revenue has filed the present appeal before us. 5. All the issues are in connection with the allowance of claim of the assessee. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: - “3.4.1 I have considered the facts of the case, findings of the AO and submissions made by the appellant. It's an undisputed fact that the appellant is a Category-l Merchant Banker and Stock Broker registered with SEBI and is subject to the rules and regulations of ITA No. 457/Mum/2021 C.O. No.151/Mum/2021 A.Y.2014-15 4 SEBI as per which business practices and processes are required to be audited by a Chartered Accountant on a half yearly basis. It’s also a fact that the appellant has entered into an Advance Pricing Agreement (APA) with the Central Board of Direct Taxes for its transactions with Associate enterprises and this year is one of the rollback year in the APA already signed. The books of accounts and the financial result of the appellant have already been examined and accepted during the finalisation of the terms of the APA. The appellant is a wholly owned subsidiary of a US entity and its books of accounts are duly audited. In fact, for the AY 2013-14 & 2014-15 i.e., the years preceding and succeeding this AY, the AO has duly accepted the book results of the appellant during the course of 143(3) proceedings. In the instant year, the reasons as stated by the AO for rejecting the books of accounts are an abnormal increase in expenditure and a fall in profits. No substantive reason or specific instance has been recorded by the AO for rejecting the books of accounts of the appellant. As regards the finding of the AO that there is an abnormal increase in expenditure and fall in profit, the same is also not factually correct. The appellant has provided a comparison of the expenses and the-profit of this year with the preceding year, which is as under: Particulars A.Y.2013-14 A.Y.2014-15 Net profit/loss as per the financial statement 31,270,891 21,141,153 Profits & gains from business 868,547 6,174,409 As is evident from the table above, the finding of the AO is factually incorrect. There has been an increase of 23.05% in the revenue from operations as compared to the previous year and an increase of ITA No. 457/Mum/2021 C.O. No.151/Mum/2021 A.Y.2014-15 5 14.85% in the expenses vis-a-vis the operating expenses of the previous year. The AO was asked to comment on this fact and also the submission of the appellant. However, in his reports dated 29.01.2019 and 26.08.2019, the AO has stated that he cannot give afresh findings in the matter of assessment of income, on the same material that was filed before his predecessor AO on which a view was taken by the erstwhile AO. 3.4.2 In view of the discussion above and the factual matrix, the finding of the AO that the expenses of the appellant have significantly Increased without material change in revenue is factually incorrect. The AO has not given a single finding to the effect as to why the books of accounts of the appellant are to be rejected and the book results not accepted. Moreover, the same book result for the year has already been accepted by the APA authorities and also by the AO in the preceding and succeeding year. Accordingly, the finding of the AO that the book result of the appellant is not correct is rejected and the estimated income of Rs.7,10,84,939/- being 10% of the gross receipts is deleted. Since the income estimated by the AO has been deleted, the issue of double addition of Rs.18,69,92,012/- and Rs.61,74,410/- does not require any separate adjudication. 3.4.3. This ground of appeal of the AO requesting for deletion of estimated income of Rs.7,10,84,939/- is therefore allowed.” 6. On appraisal of the above mentioned finding, we noticed that the books of account and financial result of appellant have already been examined and accepted during the finalizing of the terms of the Advance Pricing Agreement (APA). The appellant is a wholly owned subsidiary of a ITA No. 457/Mum/2021 C.O. No.151/Mum/2021 A.Y.2014-15 6 US entity and its books of accounts are duly audited. In the assessment year 2013-14 & 2014-15, the AO accepted the books results of the appellant in the assessment u/s 143(3) of the Act. The only reason which has been given by AO that there was substantially increase in the expenses, is not itself sufficient to reject the claim of the assessee. No specific reason of any kind was recorded. There is nothing on the file to which it can be assumed that on which grounds the books of account are not acceptable. The CIT(A) asked the remand report from the AO but there was no plausible explanation to reject the claim of the assessee. The appellant had entered into an Advance Pricing Agreement (APA) with the Central Board of Direct Taxes for its transactions with associate Enterprises and this year is one of the rollback year in the APA already signed. The books of accounts and the financial result of appellant have already been examined and accepted that the APA. Nothing came into noticed to which it can be assumed that the finding of the CIT(A) is incorrect. The facts are not distinguishable at this stage. The finding no plausible explanation to interfere with the finding of the CIT(A), we are of the view that the finding of the CIT(A) is quite correct which is not liable to be interfered with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) on these issued and decide these issues in favour of the assessee against the revenue. In the result, the appeal filed by the revenue is hereby dismissed. C.O. NO. 151/Mum/2020 7. The facts of the present case are quite similar to the facts of the case mentioned above, therefore, there is no need to repeat the same. ITA No. 457/Mum/2021 C.O. No.151/Mum/2021 A.Y.2014-15 7 8. The assessee has raised the following cross-objection: - “I. On the facts and in the circumstances of the case and in law the learned AO has: 1. erred in objecting the order of learned CIT(A), on the ground that the Ld. CIT(A) has wrongly deleted the addition made in the assessment order on account of estimation of income of Rs 7,10,84,939/- and also addition of other income of Rs 18,69,92,012/- over and above the returned income of Rs 61,74,110/- offered by the Respondent; 2. erred in objecting the order of learned CIT(A), without appreciating that Ld. CIT(A) has deleted the addition by rightly concluding that book result of the Respondent is correct, wherein the Ld. AO made the addition by estimating the income, without appreciating the factual background and without providing sufficient opportunity of being heard by rejecting the book results of the Respondent; 3. erred in objecting the order of learned CIT(A), on the false ground that the Respondent had not submitted the details and books of accounts in the assessment proceedings (including remand proceedings), without appreciating that all information and books of accounts were furnished in the assessment proceedings and acknowledged by the AO in the remand proceedings; II On the facts and in the circumstances of the case and in law the learned CIT(A) / AO has: ITA No. 457/Mum/2021 C.O. No.151/Mum/2021 A.Y.2014-15 8 4. without prejudice to the department’s appeal and cross objections 1-3 above, if department appeal is allowed then relief should be provided on account of double addition of other income of Rs 18,69,92,012 and double addition of returned income of Rs 61,74,410; III On the facts and in the circumstances of the case and in res: ect of short grant of Interest on refund the learned AO has: 5. erred in granting short interest on refund under section 244A of the Act, by not following the correct methodology laid down under section 244A r.w.s. 140A i.e. amount of refund granted earlier should be adjusted first against interest component and thereafter balance amount, if any, should be adjusted against principal component of refund; 6. erred in not granting additional interest under section 244A(1A) of the Act which provides for additional interest @ 3% p.a. for not passing the order giving effect order within stipulated time as per section 153 of the Act. The Respondent craves leave to amend or alter any ground or add new ground would be necessary.” ISSUE Nos. 1 to 4 9. Since the issue nos. 1 to 4 have already been decided in favour of the assessee against the revenue while deciding the appeal bearing ITA. No.457/Mum/2021, therefore, these issues are being decided in favour of the assessee against the revenue accordingly. ITA No. 457/Mum/2021 C.O. No.151/Mum/2021 A.Y.2014-15 9 ISSUE Nos. 5 & 6 10. At the time of argument, these issues have not been pressed by the Ld. Representative of the assessee, therefore, these issues are being decided in favour of the revenue against the assessee being not pressed. 11. In the result, the appeal filed by the revenue is hereby dismissed and cross objection filed by the assessee is hereby partly allowed. Order pronounced in the open court on 11/04/2022 Sd/- Sd/- (GAGAN GOYAL) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 11/04/2022 Vijay Pal Singh (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai