A. Menarini India Pvt. Ltd., Ahmedabad V. The Pr. CIT-1, Ahmedabad

ITA 1441/AHD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6122 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 31-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA A GARWAL
• Keywords: Revision of order; Assessment record; TDS
• Section: 143(3); 244A; 142(1); 143(1); 195; 143(2); 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT& MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.1441/AHD/2016 (ASSESSMENT YEAR :2011-12) A. MENARINI INDIA PVT. LTD., A-101, SHAPATH IV, OPP. KARNAVATI CLUB, S. G. HIGHWAY, AHMEDABAD 380 015. VS. THE PR. CIT-1, AHMEDABAD. [ PAN NO. AAACI 9822 K ] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI TUSHAR P. HEMANI, A.R. RESPONDENT BY: MS. APARNA AGARWAL, CIT-D.R. DATE OF HEARING 07.08.2019 DATE OF PRONOUNCEMENT 07.08.2019 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER DATED 29.03.2016 PASSED BY THE PR. COMMISSIONER OF INCOME TAX 1, AHMEDABAD ARISING OUT OF THE ORDER DATED 25.03.2014 PASSED BY THE DCIT, CIRCLE 4, AHMEDABAD UNDER SECTION 143(3) OF THE I NCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT) FOR ASSESSME NT YEAR 2011-12. 2. THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF TRADING IN PHARMACEUTICAL PRODUCTS ON A WHOLE SALE BASIS IN RE SPECT OF PHONE PROJECTS, FILED ITS RETURN OF INCOME ON 30.09.2010 DECLARING TOTAL INCOME AT RS. (-) 3,99,18,901, WHICH WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, UNDER SCRUTINY NOTICE U/S 143(2) DATED 06.08.2012 WAS SER VED UPON THE ASSESSEE. THE ITA NO.1441/AHD/2016 A MENARINI INDIA PVT. LTD. VS. PCIT ASSESSMENT YEAR 2011-12 - 2 - SAID ASSESSMENT WAS FINALIZED BY THE LEARNED DCIT, CIRCLE 4, AHMEDABAD ON 25.03.2014 IN THE MANNER AS FOLLOWS: 10. SUBJECT TO ABOVE, TOTAL INCOME OF THE ASSESSEE IS DETERMINED AS UNDER: TOTAL INCOME AS PER INTIMATION U/S 143(1) OF THE ACT. DATED : 28.01.2012 RS.(-) 3,99,18,901/- ADD: (I) UPWARD ADJUSTMENT AS DISCUSSED * RS.2,18,43,574/- (II) DISALLOWANCE AS PER PARA 9 RS.22,74,380/- TOTAL ASSESSED LOSS RS.1,58,00,947/ - * DISALLOWANCE OF RS.48,78,986/- OF ROYALTY PAYMENT HAS NOT TAKEN FOR COMPUTATION AND IN THE WAY FOR TAXATION TO AVOID TH E DOUBLE TAXATION BEING THE UPWARD ADJUSTMENT OF RS.2,18,43,575/- INC LUDES THE SAME. HOWEVER, THE LEARNED PCIT FOUND SUCH ASSESSMENT OR DER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE FOLLOWING REASONS: (1) SCRUTINY OF THE ASSESSMENT RECORDS REVEALED T HAT THE ASSESSEE HAD CLAIMED TAX DEDUCTED AT SOURCE (TDS) OF RS.3,00,08, 514/- ON PROFESSIONAL SERVICE INCOME FOR THE F. Y.2010-11 RE LEVANT TO A. Y.2011- 12. FURTHER, IT WAS ALSO NOTICED FROM THE SCHEDULE M INCOME FORM OPERATION OF P&L ACCOUNT THAT THE ASSESSEE HAD OFFE RED TO TAX OF RS.23,97,76,136/- UNDER THE HEAD 'SERVICE INCOME', TOTAL SERVICE INCOME WITH SUPPORT OF TDS OF RS.3,00,08,514/- CLAIMED BY THE ASSESSEE WOULD BE RS.30,00,85,140/-. THIS CLEARLY INDICATED THAT T HE INCOME WERE SHOWN LESS TO THE EXTENT OF RS.6,03,09,004/- ALONGWITH TH E ASSESSEE HAD ALSO CLAIMED REFUND OF RS.3,01,67,360/-. THEREAFTER, THE CASE WAS RECTIFIED U/S 154 AND THE TDS OF RS.3,01,67,362/- WAS GIVEN A ND ALONGWITH THEREON INTEREST U/S 244A OF RS.22,38,818/- WAS ALS O GRANTED TO THE ASSESSEE. THIS RESULTED IN UNDER ASSESSMENT OF RS.6 ,03,09,004/- AND CONSEQUENTIAL TAXES/INTEREST. (2) THE SCRUTINY OF RECORDS REVEALED THAT WHILE FI NALIZING THE SCRUTINY ASSESSMENT, THE AO DISALLOWED THE EXPENDITURE OF NO N ACHIEVEMENT OF TARGETS AMOUNTING TO RS.22,74,380/- AS THE SAME WER E DISALLOWED DURING THE SCRUTINY ASSESSMENT FINALIZED FOR A.YS.2 008-09, 2009-10 AND 2010-11. WHEN THE FULL EXPENDITURE OF NON ACHIEVEME NT OF TARGETS WAS DISALLOWED, THE DEDUCTION OF RS.19,94,560/- CLAIMED BY THE ASSESSEE ITA NO.1441/AHD/2016 A MENARINI INDIA PVT. LTD. VS. PCIT ASSESSMENT YEAR 2011-12 - 3 - DURING A.Y. 2011-12 WAS ALSO REQUIRED TO BE DISALLO WED. THIS HAS RESULTED IN UNDER ASSESSMENT OF INCOME OF RS.19,94, 560/- (3) FURTHER SCRUTINY OF RECORDS REVEALED THAT' THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.5,50,92,026/- IN P&L ACCOUN T UNDER SCHEDULE R OPERATING AND ADMINISTRATIVE EXPENSES WHICH INCLU DES PROFESSION FEES OF RS.14,52,503/- WHICH WAS PAID TO NON-RESIDENTS W ITHOUT DEDUCTING TDS U/S 195 OF THE ACT. FAILURE TO DEDUCT TDS ON TH E AMOUNT OF RS.14,52,503/- ATTRACTS THE PROVISIONS OF SECTION 4 0(A)(1) UNDER WHICH ANY SUM PAYABLE TO A FOREIGN COMPANY ON WHICH TAX I S DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED WAS REQUIRED TO BE DISALLOWED. IN VIEW OF THE ABOVE, PR OFESSIONAL FEES OF RS.14,52,503/- WAS REQUIRED TO BE DISALLOWED. HOWEV ER, NO SUCH DISALLOWANCE WAS MADE IN ASSESSMENT ORDER. THIS HAS RESULTED IN UNDER ASSESSMENT OF INCOME OF RS.14,52,503/-. ACCORDINGLY, SHOW-CAUSE DATED 08.03.2016 WAS SERVED UPON THE ASSESSEE AS TO WHY APPROPRIATE ORDER U/S 263(1) OF THE ACT SHOULD NOT BE PASSED. THUS, IT APPEARS THAT THE LEARNED PCIT HAS INVOKED JURISDICTION U/S 263 IN RESPECT OF THE FOLLOWING THREE ISSUES: I. TOTAL SERVICE INCOME ON THE BASIS OF TDS RS.3,00,08 ,514/- WOULD BE RS.30,00,85,140/- AGAINST WHICH THE ASSESSEE HAS DECLARED SERVICE INCOME OF RS.23,97,76,136/- AND THUS THERE IS AN UN DER ASSESSMENT SERVICE INCOME OF RS.6,03,09,004/- (30,00,85,140 - 23,97,76,136). II. PROVISION OF RS.19,94,560/- FOR NON ACHIEVEMENT OF TARGETS AND NEEDS TO BE DISALLOWED. III. SUM OF RS.14,52,503/- NEEDS TO BE DISALLOWED U/S 40 (A)(I) SINCE ASSESSEE FAIL TO DEDUCT TAX AT SOURCE U/S 195 OF TH E ACT. IN RESPONSE TO THE SAID SHOW-CAUSE, THE ASSESSEE BY AND UNDER A REPLY DATED 28.03.2016 EXPLAINED THE ENTIRE SITUATION BEFORE TH E LEARNED PCIT STATING THAT PRESUMPTION OF THE REVENUE THAT INCOME SHOULD ALSO BE INDIRECT PROPORTION TO THE AMOUNT OF TDS IS NOT CORRECT. AT TIMES THERE AR E SOME TIMING DIFFERENCE BETWEEN REVENUE RECOGNITION AND DEDUCTION TAX AT SO URCE. THE ASSESSEES CASE IS THIS THAT THE DEDUCTOR HAS EFFECTED TDS ON ACCOU NT OF SERVICE TAX TO THE ITA NO.1441/AHD/2016 A MENARINI INDIA PVT. LTD. VS. PCIT ASSESSMENT YEAR 2011-12 - 4 - TUNE OF RS.2,46,96,942/- WHICH IS INCLUDED IN THE B ILL. THE SERVICE TAX COLLECTED BY THE SERVICE PROVIDER IS NOT THE INCOME OF THE AS SESSEE AND HENCE THE SAME IS NOT REFLECTED IN HIS PROFIT AND LOSS ACCOUNT. FURTH ER THAT THE DEDUCTOR HAS ALSO EFFECTED TDS ON REIMBURSEMENT EXPENSES OF RS.1,46 ,78,806/- WHICH IS ALSO NOT INCOME OF THE ASSESSEE AND THUS IS NOT REFLECTE D IN THE PROFIT AND LOSS ACCOUNT. APART FROM THAT THE DIFFERENCE ON ACCOUNT OF TIMING DIFFERENCE WAS OF RS.2,32,16,538/-. MORE SO THE RECONCILIATION STATEM ENT OF DIFFERENCE BETWEEN SERVICE INCOME AS PER PROFIT AND LOSS ACCOUNT AND A S WORKED OUT BASED ON TDS WAS ALSO FURNISHED BY THE ASSESSEE BEFORE THE L EARNED PCIT. HOWEVER, SUCH SUBMISSION RENDERED BY THE ASSESSEE WAS NOT FO UND ACCEPTABLE BY THE LEARNED PCIT. HE, THEREFORE, HELD THE ASSESSMENT OR DER PASSED U/S 143(3) OF THE ACT DATED 25.03.2014 WAS ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF REVENUE. THE LEARNED AO HAS ALSO BEEN DIRECTED BY T HE LEARNED PCIT TO MAKE FRESH ASSESSMENT OF THE TOTAL INCOME RESPECT O F THE ISSUES AS MENTIONED HEREINABOVE AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE AND ALSO TO MAKE NECESSARY VERIFICATION AND ENQUIRIES IF REQUIR ED. 3. AT THE TIME OF HEARING OF THE INSTANT APPEAL, TH E LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE LEARNED AO HAS ALREADY CLARIFIED IN HIS ORDER THAT CREDIT FOR PREPAID TAX ES HAS BEEN GIVEN AFTER VERIFICATION AND ITS CALCULATION IS AS PER ITNS 150 . HE FURTHER SUBMITTED THAT IN ORDER TO INVOKE REVISIONARY JURISDICTION U/S 263 OF THE ACT THE TWIN CONDITIONS BEING THE AOS ORDER MUST BE ERRONEOUS AND ALSO PRE JUDICIAL TO THE INTEREST OF REVENUE NEED TO BE FULFILLED. UNLESS THE TWIN CONDI TIONS ARE FULFILLED REVISIONARY JURISDICTION CANNOT BE INVOKED BY THE R EVENUE AS ALSO SUBMITTED BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE. IN SUPPORT OF HIS SUBMISSION, HE PLACED RELIANCE IN THE JUDGMENT PASSED BY THE HO NBLE APEX COURT IN THE MATTER OF MALABAR INDUSTRIAL CO. LTD-VS-CIT (2000) 243 ITR 83 (SC). SO FAR AS ITA NO.1441/AHD/2016 A MENARINI INDIA PVT. LTD. VS. PCIT ASSESSMENT YEAR 2011-12 - 5 - THE PROVISION OF RS.19,94,560/- FOR NON-ACHIEVEMENT OF TARGETS IS CONCERNED,IT WAS THE SUBMISSION OF THE LEARNED AR THAT THE SAME WAS EXAMINED AT THE ORIGINAL ASSESSMENT STAGE ITSELF BY THE LEARNED AO AND UPON SUCH EXAMINATION ADDITION TO THE TUNE OF RS.22,74,380/- WAS MADE. FU RTHER THAT WHEN TWO VIEWS ARE POSSIBLE AS REGARDS A PARTICULAR ISSUE AND AO A DOPTS EITHER OF THE SAID TWO VIEWS, THE LEARNED CIT IS NOT PERMITTED TO INVOKE J URISDICTION U/S 263 OF THE ACT. WE FIND THAT THE OBSERVATION REGARDING NON-DEDUCTI ON OF TAX AT SOURCE U/S 195 ON PAYMENTS OF RS.14,52,503/- BY THE ASSESS EE AS MADE BY THE LD. PCITIS NOT CORRECT SINCE THE ASSESSEE HAS ALREADY D EDUCTED TAX AT SOURCE ON SUCH PAYMENTS THE DETAILS WHEREOF WAS FURNISHED BEF ORE THE LEARNED PCIT WHICH IS ALSO AVAILABLE ON RECORD AT PAGE 92-103 OF THE PAPER BOOK SUBMITTED BEFORE US. FURTHER THAT THE SAME WAS ALSO EXAMINED AT ORIGINAL ASSESSMENT STAGE WHICH IS EVIDENT FROM POINT NO.16 OF QUESTIONNAIRE TO NOTICE DATED 12.08.2013 ISSUED U/S 142(1) OF THE ACT AVAILABLE AT PAGE 34 T O 39 OF THE PAPER BOOK. WHEN AN ISSUE HAS BEEN EXAMINED AT THE ORIGINAL ASSESSME NT STAGE BUT THE SAME HAS NOT BEEN REFLECTED IN THE FINAL ASSESSMENT ORDER, T HEN THAT, BY ITSELF, WOULD NOT LEAD TO A CONCLUSION THAT ORDER OF AO CALLS FOR INT ERFERENCE BY THE LEARNED CIT U/S 263 OF THE ACT. THE JUDGMENT PASSED BY THE HON BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO.LTD. WAS AGAIN RELIED UPON BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE IN SUPPORT OF HI S ARGUMENT. LAST BUT NOT THE LEAST IT WAS ARGUED THAT INADEQUACY OF INQUIRY OF THE AO CANNOT BE CONSIDERED TO BE GROUND FOR PROCEEDINGS U/S 263 OF THE ACT BY THE REVENUE AUTHORITY. RELIANCE IN THIS REGARD WAS PLACED IN TH E MATTER OF CIT-VS-VIKAS POLYMERS REPORTED IN 341 ITR 537 (DELHI). ON THE OT HER HAND, LEARNED DR RELIED UPON THE ORDER PASSED BY THE LEARNED PCIT U/ S 263 OF THE ACT. ITA NO.1441/AHD/2016 A MENARINI INDIA PVT. LTD. VS. PCIT ASSESSMENT YEAR 2011-12 - 6 - 4. HEARD THE RESPECTIVE PARTIES AND PERUSED THE REL EVANT MATERIALS AVAILABLE ON RECORD. IT APPEARS FROM THE RECORDS THAT THE CAS E OF THE ASSESSEE IS THIS THAT THE SERVICE TAX CALCULATED BY THE SERVICE PROVIDER SINCE NOT THE INCOME OF THE ASSESSEE IT IS NOT BEEN REFLECTED IN THE P&L ACCOUN T. SIMILARLY, TDS EFFECTED ON REIMBURSEMENT OF EXPENSES OF RS.1,46,78,806/- IS NEITHER THE INCOME OF THE ASSESSEE, HENCE NOT REFLECTED IN P&L ACCOUNT.SO FAR AS THE DIFFERENCE ON ACCOUNT OF TIMING DIFFERENCE OF RS.2,32,16,538/- IS CONCERNED WE FIND THAT RECONCILIATION STATEMENT OF DIFFERENCE BETWEEN SERV ICE INCOME AS PER P&L ACCOUNT AND AS WORKED OUT ON THE BASIS OF THE TDS W AS ALSO FURNISHED BEFORE THE APPELLATE AUTHORITY BUT THE SAME WAS NOT TAKEN INTO CONSIDERATION IN ITS PROPER PROSPECTIVE. MERELY BECAUSE THERE WAS SOME D IFFERENCE IN THE SERVICE INCOME AS PER P&L ACCOUNT AND AS WORKED OUT BASED O N TDS THE ASSESSMENT ORDER CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF THE REVENUE. FURTHER THAT WHILE FRAMING ASSESSMENT U/S 143(3) BY AN ORDER DATED 25.03.2014 THE LEARNED AO SPECIFICALLY MENTIONED IN PARA 11 THAT THE CREDIT FOR PREPAID TAX (I.E. TDS) HAS BEEN GIVEN AFTER V ERIFICATION AND ITS CALCULATION AS PER ITNS 150. THUS THE ISSUE WAS ALREADY EXAMINE D BY THE LEARNED AO. APART FROM THAT, THE LEGAL POINT BEING FULFILLMENT OF TWIN CONDITIONS THAT THE ORDER OF THE AO BE ERRONEOUS AND ALSO PREJUDICIAL T O THE INTEREST OF REVENUE HAS NOT BEEN SATISFIED BEFORE INVOKING JURISDICTION U/S 263 OF THE ACT. IN THIS REGARD WE HAVE GONE THROUGH THE JUDGMENT PASSED BY THE HONBLE SUPREME COURT IN THE MATTER OF MALABAR INDUSTRIAL CO. LTD. SO FAR AS THE ISSUE REGARDING PROVISION OF NON-ACHIEVEMENT OF TARGET IS CONCERNED THE SAME WAS EXAMINED AT THE ORIGINAL ASSESSMENT STAGE AS SUBMITTED BY THE L EARNED AR BEFORE US IS ALSO REFLECTED FROM THE RECORDS BEFORE US. FURTHER THAT, THE ASSESSEE HAS DEDUCTED TAX AT SOURCE ON PAYMENT OF RS.14,52,503/-. THOUGH THE DETAILS IN RESPECT OF THE SAME WAS PROVIDED TO THE LEARNED CIT(A) THE SAME WA S NOT CONSIDERED. THE ISSUE HAS BEEN DULY EXAMINED BY THE ASSESSING OFFIC ER DURING THE ORIGINAL ITA NO.1441/AHD/2016 A MENARINI INDIA PVT. LTD. VS. PCIT ASSESSMENT YEAR 2011-12 - 7 - ASSESSMENT PROCEEDING BUT IN THE ABSENCE OF ANY REF LECTION OF THE SAME IN THE ORDER PASSED BY THE ASSESSING OFFICER WOULD NOT LEA D TO A CONCLUSION THAT THE ORDER OF LEARNED AO CALLS FOR INTERFERENCE BY THE L EARNED CIT U/S 263 OF THE ACT. THE ALTERNATIVE SUBMISSION MADE BY THE LEARNED ASSESSEES COUNSEL IS THIS RESPECT THAT WHEN TWO VIEWS ARE POSSIBLE AS REGARDS A PARTICULAR ISSUE AND THE AO ADOPTS EITHER OF TWO SUCH VIEWS THEN JURISDICTIO N U/S 263 CANNOT BE INVOKED BY THE LEARNED CIT IS ALSO ACCEPTABLE.WE TA KE INSPIRATION FROM THE JUDGMENT PASSED IN THE MATTER OF MALABAR INDUSTRIAL CO. LTD. AS BEEN RELIED UPON IN THIS RESPECT.HENCE, WE FIND THAT ORDER IMPU GNED U/S 263 OF ACT CANNOT SATISFY ANY OF THE CONDITIONS ENVISAGED IN THE PROV ISION OF LAW AS DISCUSSED ABOVE. FULFILLMENT OF TWIN CONDITIONS SO AS TO THE CLAIM OF THE ORDER BEING ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE ALSO FAILS AS ALREADY BEEN DISCUSSED BY US HEREINABOVE. THUS THE ORDER IMPUGNE D DOES NOT JUSTIFY/FULFILL ANY OF THE CONDITIONS WITHIN THE FOUR CORNERS OF LA W AND HENCE LIABLE TO BE QUASHED. RESULTANTLY, THE IMPUGNED ADDITION UPON IN VOCATION OF JURISDICTION U/S 263 OF THE ACT BY THE LEARNED CIT IS DELETED. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 07/08/2019 SD/- SD/- ( PRAMOD KUMAR) ( MS. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 07/08/2019 PRITIYADAV, SR.PS ITA NO.1441/AHD/2016 A MENARINI INDIA PVT. LTD. VS. PCIT ASSESSMENT YEAR 2011-12 - 8 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE PCIT-1 AHMEDABAD. 5. , , / DR, ITAT, AHMEDABAD 6. !'#$ / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , ! / ITAT, AHMEDABAD 1. DATE OF DICTATION 08.07.2019 (DICTATION PAGES 7) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 10.07.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S11.07.2019 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER