MIRUM DIGITAL PRIVATE LIMITED GHATKOPAR WEST, MUMBAI V. PCIT, MUMBAI-6, MUMBAI-6

ITA 1489/MUM/2022

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Mirum Digital Pvt. Ltd., engaged in digital marketing and advertisement services, filed an appeal against the order of the PCIT, which set aside the original assessment order under section 143(3) of the Income Tax Act, 1961. The PCIT had found discrepancies between the gross receipts reported in the tax return and those in Form 26AS, along with other financial documents, which were not adequately examined by the Assessing Officer (AO). The ITAT dismissed the appeal, agreeing with the PCIT that the AO had not properly verified the details of income and reimbursements, leading to an erroneous assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123246 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-10-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 30-05-2022
• Other Referred Cases: Gee Vee Enterprises v. Additional Commissioner of Income-tax, Malabar Industrial Co. Ltd. V. Commissioner of Income-tax, Piramal Investment Opportunities Fund, Rediffusion Brand Solution Pvt. Ltd., Bovis Lend Lease (1) P Ltd vs ITO, Nagesh Knitwears (P.) Ltd, Amitabh Bachchan, Rajmandir Estates Private Limited vs. Pr. CIT, Daniel Merchants Private Limited vs. ITO, Ballarpur industries Ltd., Sify Software Ltd. v/s ACIT, Rampyari Devi Sarogi v. CIT, Tara Devi Aggarwal V. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Revision of order; Opportunity of being heard; Tax effect; TDS; Set aside
• Section: 263; 28; 143(3); 142(1); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 1489/Mum/2022 (A.Y. 2017-18) Mirum Digital Pvt. Ltd. Unit No. 101A/101AI, Raheja Plaza 1, A-Wing, 1 st Floor, Ghatkopar (West), 35, New Marine Lines, Mumbai-400086. PAN: AANCS0273K ...... Appellant Vs. Pr.CIT-6, Mumbai. ..... Respondent Appellant by : Sh. Himanshu Gandhi, CA Respondent by : Dr. Mahesh Akhade, CIT-DR Date of hearing : 06/10/2022 Date of pronouncement : 02/01/2023 ORDER PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of Principle Commissioner of Income Tax (Appeals)-6, (for short ‘PCIT’), Mumbai dated 27.03.2022 under section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) for A.Y. 2017-18. The assessee has raised the following grounds of appeal: 2 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. A) Grounds of appeal 1. The learned PCIT erred in holding that the order passed in the case of Appellant Company u/s 143(3) of IT Act 1961 on 23/12/2019 by Additional Joint/ Deputy / Assistant Commissioner of Income Tax. Income-tax Officer, National Faceless Assessment Centre, Delhi is erroneous and prejudicial to the interest of revenue and setting aside the same u/s 263 of IT. Act 1961. 2. The learned PCIT erred in holding that the Order has been passed without making inquiries or verification which should have been made in respect of the difference between Gross Receipts as per 26AS and the Total Turnover as per 3CD and P&L which has not been examined even though above aspects were duly examined by A.0, while accepting the income declared in return in assessment framed u/s 143(3) of I.T. Act 1961. 3. The order passed by A.O on 23/12/2019 u/s 143(3) is neither erroneous nor prejudicial to the interest of revenue and ought not to have been set aside by PCIT u/s 263 of I.T. Act 1961. 4. Any other ground shall be prayed at the time of hearing. B) Tax effect relating to each Ground of appeal: Nil since the appeal is filed against very order of PCIT ordering reopening of assessment. 2. Brief facts of the case are that assessee is a company engaged in the business of maintenance of the websites, creation of multimedia presentation and advertisement and software sales on face book and twitter on behalf of their clients. Assessee filed its return of income declaring total income of Rs. 3,29,35, 260/-. Case of the assessee was selected under CASS for complete scrutiny and assessed u/s 143(3). 3. Thereafter the office of Ld. PCIT issued a notice u/s 263 vide dated 24-02- 2022.As per the order of Ld. PCIT vide dated 27-03-2022 none appear/responded to this notice and order was passed based on records available with him. 4. Against this order of Ld. PCIT passed u/s 263 assessee preferred this appeal before us. 3 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. 5. With reference to this matter we have gone through notice u/s 142(1) with relevant annexure (vide page no. 1 to 7 of paper-book) order of AO u/s 143(3) dated 23-12-2019 (vide page no. 31 to 33 of paper-book), notice u/s 263(vide page no. 34 to 35 of paper-book), order u/s 263 vide dated 27-03-2022 and submissions of the assessee in response to notice u/s 142(1) dated 29-11-2019 (vide page no. 8 to 30 of paper-book). 6. Relevant para of notice u/s 142(1) and 263 we are reproducing herein below: “Notice u/s 142(1) of the Act 11. Please furnish the names and complete postal address of all the persons to whom payments were made by way of Commission, Brokerage or Incentives. Also explain which services were rendered by them along with the agreements for the same. With reference to commission paid, please furnish details in the following format:- Name and address of the person to whom commission etc paid Name and address of the sales party with respect to which commission etc paid Sales amount Percentage of Commission Commission (Gross) TDS Commission (Net) Nature of Services 16. Please furnish the complete reconciliation of 26AS/CIB/AIR/OLTAS/Services Tax/STT/Sales- tax Return with Audited books and ITR. 4 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. 29. Please submit reconciliation of income as per ITR and 26AS in the following format: Name of the party Section under which TDS was made Income credited during the year as per 26AS TDS made as per 26AS Income as per ITR TDS claimed in ITR Difference if any Reasons for mismatch 30. Please provide following details: a. Sales ledger and sales return ledger. b. Copy of service tax/VAT/Excise return if any filed during the FY 2016-17. c. Reconciliation between the figures of sales turnover reported in ITR and audit report (Form 3CD) 7. We observed the main objection to the Ld. PCIT is as enumerated in para 2.1 and 2.2 of his notice u/s 263. “2.1. Further, it is seen that there is difference in sales as per 26AS and as per Books amounting to Rs. 46,134/- which was also admitted by the assessee vide letter dated 14.12.2019, during the e-proceedings and told this office to add back in the assessment order, which remained to be done by the AO. Hence there is escapement of income u/s 28 to the tune of Rs. 46,134/-, due to mismatch as per 26AS and its Books. 2.2. This is not as per accounting principles, as reimbursement of expenses, is in the form of receipt of revenue from FB and Twitter, for assessee, working on behalf of them in India and cannot be reduced from Turnover, as the assessee is in turn recovering the same from clients in India. The same should have been verified by the AO before passing the assessment order. 5 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. 8. As per assessee the objection of Ld. PCIT were duly taken care of while responding point no. 11, 16, 29 and 30 of notice u/s 142(1). It is observed that Assessee is working on behalf of FB and Twitter in India and recovering amount due from the clients to be further reimbursed to Face Book and Twitter. Whatever the amount assessee billed to the clients on behalf of FB and Twitter includes service tax also. Although the sheets in the form of reconciliation between form no. 26AS and books were furnished to the AO during the assessment proceedings but the same were never produced before the Ld. PCIT in compliance to notice u/s 263. 9. It is further noted vide para 4.3 of the Ld. PCIT order u/s 263 that he has gone through the case records of the assessment proceedings, AO has not verified relevant aspects to ascertain amount received, reimbursement made, compliance of TDS etc. 10. Apparently, it seems that all the relevant information as required for assessment has been furnished by the assessee. So, there can’t be any 263 order against the assessee. But, as we observed that assessee neither appeared/ responded to the queries of the Ld. PCIT and the same were not furnished before us also to explain the concern. The order of Ld. PCIT is solely based on the record of AO which certainly reflects a deficiency in terms of verification of all the aspects essential for assessment. In our understanding any order which is erroneous and prejudicial to the interest of revenue can be revised u/s 263. Even if it is assumed that relevant information has been provided by the assessee but the same is not evaluated properly by the AO, still order can be erroneous and prejudicial to the interest of revenue. 6 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. 11. We have gone through the judicial pronouncements relied upon by the assessee and revenue. Each case has their own facts and only the ratio laid down on legal front can be followed. The question before us is not of ascertainment of income but whether the relevant aspects of the case have been examined properly by the AO or not. 12. We further observed that ITA NO.700/Mum/2021 in the case of Piramal Investment Opportunities Fund relied upon by the assessee is distinguishable as the same is on the matter of limited scrutiny and case of the assessee is of full scrutiny. Further the case of Rediffusion Brand Solution Pvt. Ltd. Vide ITA NO. 920/Mum/2021 relied upon by the assessee is again distinguishable as in this case Ld. PCIT was not able to point out as to what further enquiries ought to have been conducted by the AO moreover, Ld. PCIT assessee complied with the notice u/s 263 whereas in this case assessee neither complied with the requirements of sec 263 nor Ld. PCIT lacked in issuance of appropriate directions to improve the assessment order. As mentioned supra the basic conditions to attract sec. 263 are that order must be erroneous and prejudicial to the interest of revenue. Relevant findings out of the order U/s. 263 of Ld. PCIT are as under “The AO has simply accepted the explanation of the assessee without verifying the purpose and nature of expenditure incurred. The Bangalore Tribunal, in the case of Bovis Lend Lease (1) P Ltd vs ITO, noted that the following parameters are essential for a payment to be regarded as reimbursement: • The actual liability to pay should be of the person who reimburses the money to the original payer. • The liability should be clearly determined. It should not be an approximate or varying amount. 7 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. •The liability should have crystallized. In other words, the reason given that payment that were never required but were made just to avoid a potential problem may not qualify. •There should be a clear ascertainable relationship between the paying and reimbursing parties. Therefore, alleged reimbursement by an unconnected person may not qualify. • The payment should first be made by somebody whose liability it never was and the repayment should then be made to that person to square off the account. • Three parties should exist in a case of reimbursement-a payer, a payee and a reimburser (i.e., the person reimbursing the amount to the payer). It is seen from the case records that the AO has not verified all these aspects to ascertain that do the sum received qualifies to be actually reimbursement of expenses or not. Further, the A was required to verify the expenses so incurred for the purpose that whether these includes payments in the nature of FTS or contract receipts (194C) which attracts obligation to deduct tax at source. Since these necessary inquiries were not carried out by the Assessing Officer, the assessment order is rendered erroneous and prejudicial to the interests of the Revenue. The order, therefore, requires to be revised. Further, considering the facts of the case, reliance is placed on the following ruling: In the case of Gee Vee Enterprises v. Additional Commissioner of Income-tax [1975] 99 IT 375 (DELHI), upheld by the Supreme Court in Malabar Industrial Co. Ltd. V. Commissioner of Income-tax (2000] 109 Taxman 66 (SC), it has been held: "The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 8 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. In this judgment the Delhi High Court referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogi v. CIT [1968] 67 ITR 84 (SC) and Tara Devi Aggarwal V. CIT [1973] 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue After reference to these two decisions, the Delhi High Court observed:- “These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return” In the case of Commissioner of Income-tax-V v. Nagesh Knitwears (P.) Ltd [2012] 22 taxmann.com 309 (Delhi) the Hon. Delhi High Court distinguished the action to be taken in the following cases: One where there is total absence of enquiry or verification in contra distinction to cases where there is inquiry but the findings are incorrect/erroneous; and where there is failure to make proper or full verification or inquiry. In the first category of cases, where there is complete lack of inquiry, the matter is settled by the Hon. Supreme Court Rampyari Devi Sarogi v. CIT [1968] 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT (1973] 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. In such type of cases it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer as explained in the case of Gee Vee Enterprises v. Additional Commissioner of Income-tax (1975] 99 IT 375 (DELHI).However in cases of full inquiry or partial verification or inquiry; *the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record 9 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. It is evident that the assessee, by not responding to the notice issued us 263 has unwarranted any further enquiry on this issue. • In CIT v Amitabh Bachchan (2016] 384 IT 200 (SC) the Apex court held that Section 263 does not require any specific show cause notice detailing specific grounds on which revision of assessment order is tentatively being proposed. Commissioner is free to exercise his jurisdiction on all issues, provided an opportunity of hearing is afforded to assessee to contest facts on basis of which he had exercised revisional jurisdiction, Even if AO has applied his mind, CIT may initiate 263 as he was of the view that the matter needed further investigation. the Hon'ble Kolkata High Court in the case of Rajmandir Estates Private Limited vs. Pr. CIT 386 ITR 162 (Cal) which has been affirmed by the Hon'ble Supreme Court in the case of Daniel Merchants Private Limited vs. ITO pronounced by the Hon'ble Supreme Court on 29.11.2017, that the CIT is entitled to revise the assessment order us. 263 of the Act on the ground that the Assessing officer did not make any proper enquiry while accepting the explanation of the assessee.” 13. We found the decision of honorable jurisdictional high court in the case of CIT Vs. Ballarpur industries Ltd. (2017) 85 Taxmann.com 10 (Bom.) relevant on this issue and ITAT Chennai Bench in the case of Sify Software Ltd. v/s ACIT (2017) 80 Taxmann.com 273 also followed the case of Ballarpur Industries Ltd. (supra). 14. In view of the above facts and judicial pronouncements we are of the opinion that matter of revenue reconciliation and reimbursement of expenses was not done at all to ascertain the income properly. We sustain the order of Ld. PCIT as he has to relied upon the records of assessment proceedings only as assessee has not turned up to attend the hearing u/s. 263 on the subject matter. 15. In these terms we sustain the order of Ld. PCIT with a safeguard that a proper opportunity of being heard and represent the matter before AO to the 10 ITA No. 1489/Mum/2022-Mirum Digital Pvt. Ltd. assessee. Assessee is directed to co-operate with the AO and bring on record the relevant evidences to substantiate his claims like relevant agreements, role of each party i.e. Payer, payee and agent, compliances with reference to T.D.S etc. 16. In the result, appeal filed by the assessee is dismissed. Order pronounced in the open court on 2 nd day of January, 2023. Sd/- Sd/- (VIKAS AWASTHY) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, िदनांक/Dated: 02/01/2023 SK, Sr.PS Copy of the Order forwarded to: 1. अपीलाथŎ/The Appellant , 2. Ůितवादी/ The Respondent. 3. आयकर आयुƅ(अ)/The CIT(A)- 4. आयकर आयुƅ CIT 5. िवभागीय Ůितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाडŊ फाइल/Guard file. BY ORDER, //True Copy// (Dy. /Asstt. Registrar) ITAT, Mumbai