TRAFOGURA GLOBAL SERVICES PVT LTD, MUMBAI V. PCIT-6 , MUMBAI

ITA 1690/MUM/2023

AI Insights

The case involves Trafigura Global Services Pvt. Ltd., which appealed against the order of the PCIT, Mumbai-6, under section 263 of the Income Tax Act, 1961, concerning the Assessment Year 2018-19. The PCIT had set aside the assessment order passed by the Assessing Officer, which had accepted the assessee's return without questioning the legal expenses claimed. The legal expenses amounted to Rs.2,99,54,061, which the assessee claimed were incurred for litigation related to a lease agreement. The Tribunal examined whether the PCIT was justified in invoking section 263, given that the issue was not part of the limited scrutiny under which the assessee's case was selected.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299173 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-08-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 14-05-2023
• Other Referred Cases: Shree Aniruddha Upasana Foundation vs. CIT (Exemption), Pr. CIT vs. Swati Bajaj, Mrs. Minakshi Shivkumar Bansal vs. Pr. CIT, CIT vs. Paville Projects (P.) Ltd., CIT vs. ETA Travel Agency (P.) Ltd., CIT vs. K. V. Nellaiappan
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Business expenditure
• Section: 263; 143(3); 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, AM AND MS. KAVITHA RAJAGOPAL, JM I TA N o. 169 0/ M u m / 20 23 ( A s s e ss me nt Y ea r: 20 1 8- 19 ) Trafigura Global Services Pvt. Ltd. Unit No. 1101, A-Wing, Plot No. C, 66G Block, One BKC, Bandra Kurla Complex, Mumbai – 400 051 V s. PCIT-6 501, 5 th Floor, Aaykara Bhawan M. G. Road, Mumbai-400 020 P A N / G I R N o. AA BC T 0 0 3 7 C (Appellant) : (Respondent) Assessee by : Shri Madhur Agarwal Revenue by : Shri Sanjay Deshmukh D a te o f H e a r i n g : 11.08.2023 D ate of P ro n ou n ce me n t : 23.08.2023 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the assessee, challenging the order of the learned Principal Commissioner of Income Tax (‘ld.PCIT’ for short), Mumbai-6 passed u/s.263 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2018-19. 2. The assessee has challenged the order of the ld. PCIT passed u/s. 263 of the Act on the ground that the assessment order passed by the Assessing Officer ('A.O.' for short) u/s. 143(3) of the Act was neither erroneous nor prejudicial to the interest of the Revenue and the assessee has also without prejudice challenged the order of the ld. PCIT on the ground that the legal expenses of Rs.2,99,54,061/- claimed by the assessee and allowed 2 ITA No. 1 6 9 0 / M u m / 2 0 2 3 ( A . Y . 2 0 1 8 - 1 9 ) Trafigura Global Services Pvt. Ltd. vs. PCIT by the A.O. was expended wholly and exclusively for the purpose of business of the assessee and was rightly allowed by the A.O. as ‘business expenditure’. 3. The brief facts are that the assessee company being an Indian company is a captive service provider of its associated enterprises (AE) on a cost plus model. The assessee had filed its return of income on 27.11.2018, declaring total income at Rs.37,24,68,330/-. The assessee’s case was selected for scrutiny and the assessment order dated 11.01.2021 was passed u/s. 143(3) of the Act where the Assessing Officer ('A.O.' for short) accepted the returned income filed by the assessee. The assessee company had entered into a lease agreement with Indiabulls Properties Private Limited (lessor) in respect of its premises at One Indiabulls (OIB) with a lock in period of 3 years and was in the process of shifting its office to OIB premises during Financial Year 2014-15. The assessee company claimed a cost of Rs.44,75,03,73/- incurred for fit outs and leasehold improvements at the new premises and stated that the said expenses was for architect’s fees, consultancy, rent, legal fees, moving costs, etc. and the said amount was entered in the books as ‘capital work in progress’ (CWIP for short). Subsequent to this, the assessee terminated the lease agreement prematurely on 30.01.2015 for the reason that the said premises was not as per the companies securities standards and the assessee sued OIB claiming damages of Rs.153,61,46,905/-. OIB had also filed a counter suit against the assessee with a counter claim of Rs.307,30,19,684/- and the same was before the arbitration. The assessee had debited an amount of Rs.2,99,54,061/- towards legal expenses incurred for litigating its claim before the arbitration. The assessee’s case was selected for scrutiny and the A.O. vide order dated 11.01.2021 passed the assessment order u/s. 143(3) of the Act accepting 3 ITA No. 1 6 9 0 / M u m / 2 0 2 3 ( A . Y . 2 0 1 8 - 1 9 ) Trafigura Global Services Pvt. Ltd. vs. PCIT the returned income filed by the assessee. The ld. PCIT invoked the provisions of section 263 of the Act for the reason that the assessment order was erroneous insofar as it was prejudicial to the interest of the Revenue and vide order dated 31.03.2023 set aside the assessment order on the issue of allowability of legal and other expenses amounting to Rs.2,99,54,061/- and thereby directing the A.O. to conduct denovo assessment. 4. The assessee is in appeal before us challenging the impugned order of the ld. PCIT. 5. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee has incurred the said expenditure for the purpose of litigating before the arbitration and the same amounted to the business expenditure of the assessee company. The ld. AR further contended that the assessee’s case was selected for limited scrutiny assessment on the issue of deduction from total income under Chapter VIA and not for complete scrutiny. The ld. AR further contended that the issue of allowability of expenditure was not before the A.O. during the assessment proceeding and that the ld. PCIT lacked jurisdiction to invoke the provision of section 263 of the Act on the ground that the A.O. has not enquired into the impugned expenditure resulting in the assessment order being erroneous and prejudicial to the interest of the Revenue. The ld. AR relied on the decision of the co-ordinate bench in the case of Shree Aniruddha Upasana Foundation vs. CIT (Exemption) (in ITA No. 706/Mum/2022 vide order dated 19.09.2022). 6. The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and stated that the assessee had claimed exorbitant expenses 4 ITA No. 1 6 9 0 / M u m / 2 0 2 3 ( A . Y . 2 0 1 8 - 1 9 ) Trafigura Global Services Pvt. Ltd. vs. PCIT which are not justifiable. The ld. DR further stated that the A.O. has not enquired into the claim of the assessee thereby making the assessment order erroneous and prejudicial to the interest of the Revenue. The ld. DR relied on the order of the Hon’ble Calcutta High Court in the case of Pr. CIT vs. Swati Bajaj [2022] 139 taxmann.com 352 (Calcutta) and the decision of the Tribunal in the case of Mrs. Minakshi Shivkumar Bansal vs. Pr. CIT [2022] 139 taxmann.com 407 (Pune – Trib.). The ld. DR relied on the decision of the Hon'ble Apex Court in the case of CIT vs. Paville Projects (P.) Ltd. [2023] 149 taxmann.com 115 (SC), CIT vs. ETA Travel Agency (P.) Ltd. [2019] 109 taxmann.com 66 (Madras), CIT vs. K. V. Nellaiappan [2022] 135 taxmann.com 223 (Madras). 7. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has claimed business expenses amounting to Rs.2,99,54,061/- (towards legal and other expenses) incurred for the purpose of litigating with OIB Properties Pvt. Ltd. for the dispute pertaining to the contract entered into by the assessee with OIB for the commercial space leased out to the assessee. The assessee’s case was selected for limited scrutiny assessment where the issue of the impugned expenditure was not the subject matter of scrutiny assessment and the A.O. passed the assessment order accepting the return filed by the assessee. 8. The ld. PCIT invoked the provision of section 263 for the reason that the impugned expenditure is neither a ‘capital expenditure’ not a ‘revenue expenditure’ and the same ought not to have allowed by the A.O. thereby making the assessment order erroneous and prejudicial to the interest of the Revenue. It is pertinent to point out that the assessee’s case was selected for limited scrutiny assessment for the issue of deduction 5 ITA No. 1 6 9 0 / M u m / 2 0 2 3 ( A . Y . 2 0 1 8 - 1 9 ) Trafigura Global Services Pvt. Ltd. vs. PCIT from total income under Chapter VIA for which notice u/s. 143(2) of the Act dated 22.09.2019 and notice u/s. 142(1) of the Act dated 26.11.2020 was issued and duly served upon the assessee. It is evident from the records of the assessment order that neither was it a case of complete scrutiny nor was the issue pertaining to the expenses incurred by the assessee was before the A.O. during the assessment proceeding u/s. 143(3) of the Act. We are conscious of the propositions laid down by the various courts wherein it was held that the A.O. cannot go beyond the scope for which the assessment proceeding was initiated and thereby restricted to make a roving enquiry, into issues not confronted to the assessee. The decision of the Tribunal in the case of Shree Aniruddha Upasana Foundation (supra) relied upon by the ld. AR supports this proposition of law. The decision relied upon by the ld. DR are contradictory in facts of the present case where the issue is not related limited scrutiny assessment and the same are distinguishable in facts of the present case and does not support the case of the Revenue. It is also trite to take support of the CBDT Instruction No. 7/2014 vide letter dated 29.12.2015 which states that the A.O. should restrict the enquiry only to the specific reason/issue for which the case was picked up for scrutiny in the case of ‘limited scrutiny’ and the relevant extract of the said instruction is cited hereunder for ease of ready reference: 3. As far as the returns selected for scrutiny through CASS "3. CASS-2015 are concerned, two type of cases have been selected for scrutiny scruti in Year-- one is 'Limited Scrutiny' and other is the current Financial Year 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under secti on 143(2) of section tax Act, 1961 ('Act'). The procedure for handling the Income-tax 'Limited Scrutiny' cases shall be as under: a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. 6 ITA No. 1 6 9 0 / M u m / 2 0 2 3 ( A . Y . 2 0 1 8 - 1 9 ) Trafigura Global Services Pvt. Ltd. vs. PCIT b. The Questionnaire under section 142(1) of the Act in ‘Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues. c. These casess shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in 'Limited Scrutiny cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of approval shall be the Pr. CIT/CIT concerned. However, such an approval accorded by the by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating Complete Scrutiny' in that particular case Such cases shall be monitored by the Range Head concerned. The procedure indicated at point pointss (a). (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad).” 9. It is also pertinent to point out that in case of limited scrutiny where the A.O. considers it necessary to conduct a comprehensive scrutiny, necessary approval from the concerned authority is mandatory. In the present case in hand, the Revenue has failed to substantiate that the issue related to the expenditure claimed by the assessee was before the A.O. during the assessment limited scrutiny proceeding nor it brought on record any fact to show that the A.O. had authority to go beyond the issue for which scrutiny assessment was initiated. The decision of the co-ordinate bench relied upon by the ld. AR in Shree Aniruddha Upasana Foundation (supra) has dealt with this issue extensively by citing the various instructions of CBDT on several occasions on this issue. 10. From the above observation, we are of the considered view that the assessment order passed by the A.O. for the purpose of verifying the limited issue is not considered to be erroneous insofar as it is prejudicial to the interest of the Revenue. The ld. PCIT lacks jurisdiction to invoke the provision of section 263 of the Act in the present case in hand. We, therefore, allow the grounds raised by the assessee. 7 ITA No. 1 6 9 0 / M u m / 2 0 2 3 ( A . Y . 2 0 1 8 - 1 9 ) Trafigura Global Services Pvt. Ltd. vs. PCIT 11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 23.08.2023. Sd/- Sd/- (Om Prakash Kant) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 23.08.2023 Roshani , Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai