M/S.IAL INDIA LTD. V. ASSISTANT COMMISSIONER OF INCOME TAX

ITA/52/2013

AI Insights

The case involves IAL India Ltd., which appealed against the Tribunal's decision to conduct a de novo assessment of its income tax returns for the assessment year 2002-03. The company had initially declared a loss in its return, which was accepted. However, subsequent survey operations revealed discrepancies in reported income from shipping and handling charges. The Assessing Officer issued a notice under Section 148 of the Income Tax Act, leading to a reassessment. The Tribunal's decision to conduct a de novo assessment was based on the need to clarify the agent-principal relationship between IAL India Ltd. and IAL Container Line UK Ltd, and to ensure all relevant materials were considered.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 761370 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 05-11-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: DEVAN RAMACHANDRAN; K M ANEESH; S SANKAR; ADARSH KUMAR
• Keywords: Best Judgment Assessment; De-novo Assessment; Income tax appeal; Shipping Business; Global Freight Forwarding; Agent-Principal Relationship
• Section: 148; 144; 143(1); 172

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE TUESDAY, THE 5TH DAY OF NOVEMBER 2013/14TH KARTHIKA, 1935 ITA.No. 52 of 2013 () ---------------------- AGAINST THE ORDER IN ITA 79/COCH/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 20-07-2012 APPELLANT/RESPONDENT: ---------------------------------------------- M/S.IAL INDIA LTD. (FORMERLY M/S.IAL SHIPPING AGENCIES (KOCHI)LTD. AMALGAMATED WITH M/S. IAL INDIA LTD.WITH EFFECT FROM 1-04-2004) 6TH FLOOR, METRO PLAZA, MARKET ROAD COCHIN-14, REPRESENTED BY ITS BY ADVS.SRI.DEVAN RAMACHANDRAN SRI.K.M.ANEESH SRI.S.NIKHIL SANKAR SRI.ADARSH KUMAR RESPONDENT/APPELLANT: ------------------------------------------------ ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-I (2), RANGE I, KOCHI. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 05- 11-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: MANJULA CHELLUR,C.J. & A.M.SHAFFIQUE, J. = = = = = = = = = = = = = = = = I.T.A No.52 of 2013 = = = = = = = = = = = = = = = = = = = = = Dated this the 5 th day of November, 2013 JUDGMENT Manjula Chellur,CJ The Assessee company is before us assailing the orders of the Tribunal in I.T.A.No.79/Coch/2011 so far as assessment year 2002-03. It is not in dispute that the assessee has filed return of income contending that it is engaged in the business of shipping line and global freight forwarding and declared a loss of 3,31,829/- as per the return of income dated 09.10.2002. It is ₹ also not in dispute that the said return was processed under Section 143(1) of the Income Tax Act (hereinafter referred to as the 'Act') accepting the returned loss, on 21.02.2003. What happened subsequently is relevant. 2. The department conducted survey operations at the premises of IAL Shipping Agencies (Kochi) Ltd Group on 24.08.2007, wherein it was found that the assessee before us is I.T.A No.52 of 2013 2 also one of the companies belonging to that group. From the report of survey, several facts came to light and the relevant fact was that assessee company also had an agreement dated 01.04.2001 entered with another company by name IAL Container Line UK Ltd which was also engaged in the same line of business as that of assessee company. Though assessee company was collecting freight and terminal handling charges, such amounts or charges were not reflected in the income from such business activity in the returns filed by them. Hence Assessing Officer issued notice under Section 148 of the Act. Several details were sought from the assessee. Ultimately, the Assessing Officer completed the assessment on the best judgment method under Section 144 of the Act. 3. Aggrieved by the same, company preferred appeal before the Commissioner of Income Tax (Appeals), Kochi (hereinafter referred to as CIT(Appeals) for short) challenging the additions made by the Assessing Officer on various grounds. CIT (Appeals), placing reliance on the decision of Mumbai Bench of the ITAT and also by referring some of the material placed before it by the assessee. The Appellate authority opined that I.T.A No.52 of 2013 3 the assessee was acting as an agent of the UK company and while opining so, deleted the additions made by the Assessing Officer. 4. Aggrieved by the same, the Revenue approached the Tribunal. The Tribunal, after referring to various observations of the Assessing Officer as well as CIT(Appeals), opined that orders of CIT(Appeals) deserves to be set aside and further restored all the issues to the file of the Assessing Officer with a direction to proceed with the assessments de novo without being influenced by the “Annual No Objection Certificate” dated 16.04.2001 issued by the Deputy Commissioner of Income tax, Circle-I, Mattancherry to examine all the issues afresh. Aggrieved by the same the assessee company is before us. 5. Learned counsel appearing for the appellant assessee strenuously argues that once there is acceptance of relationship of principal and agent between the UK company and the Indian company, as found in the orders of ITAT, Mumbai which has reached finality, there was no necessity to go into the said issue again so far as Cochin Circle is concerned. According to him, on account of certain material during the survey proceedings at I.T.A No.52 of 2013 4 Mumbai, there was an assessment under Section 144 of the Act, so far as Cochin circle is concerned and additions were also made on account of said materials found during the survey. Therefore, there was nothing wrong in placing reliance on the opinion of the Mumbai Tribunal by the CIT(Appeals) at Cochin. 6. He further substantiates his arguments contending that the opinion of ITAT at Mumbai was confirmed by the High Court of Mumbai, therefore there is finality and Revenue at Cochin Circle cannot hold de novo enquiry as per directions of Tribunal. According to him, the only relevant consideration in the entire material is, whether the appellant-assessee is an agent or principal and consequently the 2nd issue would be whether there is a certificate issued by the concerned authority as required under Section 172 of the Act. If the nature of business at Mumbai and Cochin are similar, there was justification for CIT (Appeals) to refer to judgment of the High court, Mumbai which has reached finality. Therefore, nothing else need to be done by the Assessing Officer, as CIT(Appeals), apart from referring to Mumbai proceedings, has also independently considered the material placed before the CIT(Appeals) and has opined that the I.T.A No.52 of 2013 5 certificate issued by Deputy Commissioner under Section 172 of the Act deserves to be taken into consideration. Therefore, nothing else remains for consideration of Assessing Officer. 7. We have gone through the papers as well as the order of CIT(Appeals) and impugned orders by the Tribunal. Tribunal has in detail referred to the material noticed by the Assessing Officer during proceedings under Section 144 of the Act. At paragraph 5 it also refers to the material pertaining to the assessment of Mumbai Company. The main reason for directing a de novo enquiry was that there are de-centralized companies. In the subsequent orders in the name of M/s.IAL which is nothing but M/s.IAL UK Company. The name of UK Company is changed to M/s.IAL Container Line India Ltd. In order to understand reasoning of the Tribunal, it is just and proper to reproduce paragraphs 4 and 5 of the Tribunal's order which reveal the material facts considered by the Assessing Officer. Paragraphs 4 and 5 read as under: “4. The AO noticed that the assessee-company as well as the UK Company are owned and controlled by members of the same family. The key person in both the companies was Shri.T.V.Narayan Kutty and he was controlling the affairs of both the companies from I.T.A No.52 of 2013 6 Dubai. It appears that the group has promoted a company named “M/s.IAL Container Line India Limited.” It has also promoted many other companies in each area of operation in India like the assessee herein, IAL(Mumbai) P Ltd., IAL(Calcutta) P Ltd, IAL(Delhi) P Ltd.etc. (For the sake of convenience, we may refer them as “Decentralised companies”). It appears that these decentralised companies, which were registered and assessed in Mumbai, claimed that the income from shipping business is exempt as per the “DTAA” entered between India and U.K. It appears that the respective assessing officers have denied DTAA benefit to them. It is stated in the instant assessment order that the decisions of the respective AOs to deny DTAA benefit to these decentralised companies were reversed by Ld CIT(A) and after the receipt of the order of Ld (CIT (A), the registered offices of these decentralised companies were shifted all over India. Since the Assessing Officers denied DTAA benefit to these decentralised companies in the subsequent years also, it is stated that all these decentralised companies were merged with a new entity named “IAL Container Line India Ltd”, whose registered office is located in Kochi. We may caution here that the details discussed above are not clearly emanating from record and we have made only an attempt to understand the back ground of the operations from the observations of the AO. Hence, we may mention that these details require authentication from the tax authorities. The purpose of making these discussions and the purpose of qualifying the observations are that the facts surrounding the various issues under consideration have not been clearly brought out either by the assessing officer or by the assessee. Be I.T.A No.52 of 2013 7 that as it may, we shall now proceed to discuss the facts of the instant case as understood by us. 5. The assessee appears to have claimed that it is acting only as an agent of UK Company and hence the shipping income generated by it in India belongs to the UK Company referred supra. Accordingly, it did not declare the said income in its Profit and Loss Account. It was also noticed that, in the assessment of another company of the Group named IAL Shipping Agencies (Mumbai) Ltd., the Department had concluded that there is no Agent-Principal relationship between IAL. Shipping Agencies(Mumbai) Ltd. and IAL Container Line (UK)Ltd.,(It is not clear whether the IAL(Mumbai) P Ltd, referred earlier and the IAL Shipping Agencies (Mumbai) Ltd are one and the same company or different companies). It appears that the company named IAL Shipping Agencies (Mumbai) Ltd claimed that it was acting as an agent of the “UK Company” and further it was claimed that the income of the UK Company is exempt under the DTAA entered between Central Government and Government of UK. Since the claim of agent-principal relationship was denied, the department assessed the entire income derived from shipping business in the hands of IAL Shipping Agencies (Mumbai) Ltd. By following the said assessment order, the Assessing Officer, in the instant case also, held that the assessee herein is also acting independently and not as an agent of the UK Company. Accordingly he completed the assessment in the instant case by assessing the entire receipts from shipping activities amounting to Rs.1,86,20,408/- in the hands of the assessee on protective basis. The AO also made various other additions and determined a total I.T.A No.52 of 2013 8 income of Rs.18,61,14,180/-. It is pertinent to note that the Assessing Officer did not make any reference to any of the letters, details or particulars, if any, filed by the assessee in the assessment order.” 8. Paragraph 9 refers to the reasoning why the Tribunal felt in the interest of justice de novo enquiry would clearly established what exactly is the nature of operations conducted by the Cochin Company. It is also glaring and relevant to mention that certain money transactions were noticed between Cochin Company and branch of UK Company at Dubai. This was not taken into consideration at all by CIT (Appeals), though a reference is made. If de novo assessment is done, in the light of the observations at paragraphs 4, 5 and 9 of the orders of the Tribunal independently, without being influenced by any of the observations of the Tribunal, it would give an opportunity to the assessee to put forth all the contentions in support of their stand that Cochin Company is nothing but an agent of the UK based Company and it has no independent status of its own. In other words, it is not a principal; but only acting as an agent. 9. However, the appellant is also entitled to place further material, if any, in support of their case to clarify the doubts I.T.A No.52 of 2013 9 expressed in the above paragraphs of the orders of the Tribunal and the Assessing Officer, without being influenced by any of the observations of the Tribunal, shall proceed with the matter as directed by the Tribunal which would meet ends of justice. Accordingly the appeal is dismissed. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE. sj 7/11 "