KNIGHT FRANK (I) P. LD, MUMBAI V. ADDL CIT RG 2(2), MUMBAI

ITA 2021/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4260 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KALIK SINGH
• Keywords: Principle of natural justice
• Section: 43B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI . , ! ' #'' '$ , % ! & BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 2021 / / 2011 A.Y. 2007-08 ITA NO. : 2021/MUM/2011 (ASSESSMENT YEAR: 2007-08) . : 6286 / / 2011 A.Y. 2008-09 ITA NO. : 6286/MUM/2011 (ASSESSMENT YEAR: 2008-09) M/S. KNIGHT FRANK (INDIA) PVT. LTD., C/O. KALYANIWALLA & MISTRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148, M.G. ROAD, FORT, MUMBAI -400 001 .: PAN: AAACK 1544 J VS ADDL. CIT, RANGE 2(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.M. GOLVALA RESPONDENT BY : SHRI KALIK SINGH /DATE OF HEARING : 04-07-2013 !' / DATE OF PRONOUNCEMENT : 10- 07-2013 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE O RDERS OF THE CIT(A)15, DATED 16.12.2010 AND 13.07.2011 RESPECTIVELY. AS THE GROUNDS NO.1 TO 5 TAKEN ARE COMMON IN BOTH THE APPEA LS, THEY ARE BEING TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE AND BREVITY. M/S. KNIGHT F RANK (INDIA) PVT. LTD. ITAS 2021 & 6286/MUM/2011 2 ASSESSMENT YEAR 2007-08 : 2. GROUND NO. 1 TO 4 PERTAIN TO ISSUE OF TREATING SERVIC E TAX AS PART OF TRADING RECEIPTS AND HAD TO BE INCLUDED AS PER THE P ROVISIONS OF SECTION 145A. 3. IN THE ASSESSMENT PROCEEDINGS, THE AO ENQUIRED FROM THE ASSESSEE FOR THE REASONS AS TO WHY SERVICE TAX IS NOT TO BE INCLUDED AS PER THE PROVISIONS OF SECTION 145A. THE ASSESSEE GAVE R EASONS FOR NON INCLUSION OF SERVICE TAX IN THE COST OF THE COMPONENTS. TH E REASONS DID NOT FIND FAVOUR WITH THE AO, WHO, ENHANCED THE TRADING PRO FIT BY RS. 69,20,599/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. THE ASSESSEE APPROACHED THE CIT(A), WHO SUSTAINED TH E ORDER OF THE AO ON THE POINT OF INCLUSION OF SERVICE TAX, INVOKING TH E PROVISION OF SECTION 145A. IT WAS SUBMITTED BEFORE THE CIT(A) THAT P ROVISIONS OF SECTION 145A DOES NOT APPLY TO SERVICE INDUSTRY. 5. THE CIT(A) DISREGARDED THE ARGUMENTS OF THE ASSESSEE, HELD, CLAUSE(B) OF THE SECTION VERY CLEARLY BRINGS W ITHIN ITS AMBIT ALL TAXES, DUTIES, CESS OR FEE BY WHATEVER NAME CAL LED. IN THE PROCESS OF LAYING DOWN THE PRINCIPLES OF DETERMININ G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION, THE CLAUSE STIPULATES THAT THE PROFIT A ND GAINS OF BUSINESS OR PROFESSION, SHALL BE FURTHER ADJUSTED TO INDICATE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATSOEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE T O BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. THE HIGHLIGHTED EXPRESSION WILL MAKE TH E LEGISLATIVE INTENTION TO INCLUDE ALL TAXES AND LEVIED WITHIN TH E AMBIT OF SEC. 145A ELOQUENTLY CLEAR IN THAT BY INSERTING THE EXPR ESSION BY WHATEVER NAME CALLED, THE SECTION BRINGS WITHIN IT S AMBIT ALL PAYMENTS IN THE NATURE OF TAX, DUTY, CESS OR FEE. I N THIS LIGHT, THERE IS NO LOGIC WHY SERVICE TAX BEING A LEVY BY W AY OF TAX WILL NOT BE INTENDED TO BE INCLUDED IN SECTION 145A. IN VIEW OF THIS, THE APPELLANTS ARGUMENT THAT SERVICE TAX IS NOT ME NTIONED IN SEC. 145A IS MISPLACED AND IMMATERIAL. IN THIS RESP ECT, THE ASSESSING OFFICER HAS ALSO RIGHTLY POINTED OUT THAT THE EXCISE DUTY, VAT AND OTHER TAXES ARE ALSO NOT SPECIFICALLY MENTIONED BUT INCLUDIBLE IN SEC. 145A. FURTHER, THE APPELLANT S ARGUMENT THAT SECTION 145A APPLIES ONLY TO MANUFACTURING AND TRADING ACCOMPANY IS ALSO OFF THE MARK AS IT IS THE TAXES A ND LEIVES WHICH ARE CENTRAL TO SECTION 145A AND NOT THE SECTO R WHICH COLLECTS AND PAYS THESE TAXES AND LEVIES. IN THIS C ONTEXT, SERVICE TAX STANDS ON THE SAME FOOTING AS EXCISE DUTY, SALE S TAX AND M/S. KNIGHT F RANK (INDIA) PVT. LTD. ITAS 2021 & 6286/MUM/2011 3 SUCH OTHER TAXES WHICH ARE COLLECTED TO BE PAID TO THE GOVERNMENT. 6. AGGRIEVE, THE ASSESSEE IN NOW BEFORE THE ITAT. 7. BEFORE US, THE AR POINTED OUT THAT THE ISSUE HAS BEE N DEALT WITH BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS NOBLE & HEWITT (I) PVT. LTD., REPORTED IN 305 ITR 324 AND ACIT VS REAL IMAG E MEDIA TECHNOLOGIES PVT. LTD. REPORTED IN 306 ITR 106 (AT-CHENNA I). IN THIS CASE, THE COORDINATE BENCH HELD, THAT SERVICE PROVIDER WAS MERELY ACTING AS AN AGENT OF THE GOVERNMENT AND WAS NOT EN TITLED TO CLAIM DEDUCTION ON ACCOUNT OF SERVICE TAX. SINCE SERVICE T AX WAS NOT PAYABLE BY THE ASSESSEE, RIGOUR OF SECTION 43B OF THE ACT CO ULD NOT BE APPLIED TO THE CASE OF THE ASSESSEE. IN EFFECT, THE MISCHIEF OF SECTIONS 145A AND 43B, DOES NOT HIT THE ASSESSEE, THEREFORE THE ADDITION OU GHT TO BE DELETED. 8. THE DR RELIED ON THE DECISIONS OF THE REVENUE AUTHORITIES. 9. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. THE FACT IS THAT THE ASSESSEE IS A SERVICE PROVIDER COMPANY AND PATENTLY, PROVISIONS OF SECTION 145A CANNOT BE MADE APPLICABLE, BECAUSE THE PROVISION WAS SPECIFICALLY INTROD UCED FOR THE PURPOSES OF MANUFACTURE SEGMENT OF BUSINESS BECAUSE SECTION 145A(A)(II) SUBMITTED BEFORE THE CIT(A) MENTIONS BY THE ASSESSEE BEING GOODS TO THE PLACE OF LOCATION & CONDITIONS AS ON THE DATE OF VALUATION ARE REQUIRED TO BE INCLUDED . 10. IN ANY CASE THE ISSUE IS NOW COVERED BY THE DECISIONS RELIED UPON BY THE ASSESSEE. 11. RESPECTFULLY FOLLOWING THE DECISIONS, WE SET ASIDE THE OR DER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. M/S. KNIGHT F RANK (INDIA) PVT. LTD. ITAS 2021 & 6286/MUM/2011 4 12. AS A CONSEQUENCE THEREOF THE ADDITION MADE U/S 43B WOULD ALSO BE DELETED, BECAUSE NO LIABILITY ARISES AS SUCH OR ON THE LA ST DAY OF THE ACCOUNT PERIOD AND IS ALSO COVERED BY THE DECISIONS AS M ENTIONED ABOVE. THE AO IS ALSO DIRECTED TO DELETE THE ADDITION OF RS . 22,00,808/- AS MADE U/S 43B. AS A RESULT GROUNDS 1 TO 5 ARE ALLOWED. 13. GROUND NO. 6 PERTAINS TO ADDITION OF RS. 1,20,583/- U/S 41(1) OF THE ACT. 14. AGGRIEVED THE ASSESSEE IS NOW BEFORE THE ITAT. 15. BEFORE US, THE AR SUBMITTED THAT IN THE ASSESSMENT PROCEEDINGS THE AO HAD REQUIRED THE PARTIES TO SEND THE BALANCE VE RIFICATIONS. THE AO FOUND DIFFERENCES IN BALANCES IN RESPECT TO CERTAIN PART IES, WHICH ACCORDING TO HIM REDUCED THE LIABILITY OF THE ASSESSEE VIS- -VIS THOSE PARTIES. THE AO, THEREFORE, INVOKED THE PROVISION OF SECTION 41(1) AND ADDED THE DIFFERENCE OF LIABILITIES DUE TO THOSE PARTIES TO TH E INCOME OF THE ASSESSEE. 16. THE ASSESSEE APPROACHED THE CIT(A), WHO SUSTAINED TH E ORDER OF THE AO. WHILE COMING TO SUCH A DECISION, CIT(A) BRINGS FORE FO LLOWING FACTS, TAKING INTO CONSIDERATION THE DECISION ARRIVED AT BY THE AO AND SUBMISSIONS MADE BY THE ASSESSEE, 6.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, N OTICES U/S 133(6) OF THE ITA WERE ISSUED TO SEVERAL PARTIES FOR VERIFICATION OF EXPENSES AND CONFIRMATION OF BALANCES. AFTER GOING THROUGH THE D ETAILS COLLECTED, AN AMOUNT OF RS. 1,20,583/- WAS TREATED AS APPELLANTS INCOME IN RESPECT OF VARIOUS LIABILITIES WHICH HAVE CEASED TO EXIST IN VIEW OF R ECONCILIATION OF ACCOUNTS. THIS WAS TREATED AS APPELLANTS INCOME U/S 41(1) OF THE ITAT. IN APPEAL, THE FOLLOWING SUBMISSIONS WERE MADE: DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, T HE AO ISSUED NOTICES U/S 133(6) TO SEVERAL PARTIES, AND CALLED FOR LEDGER AC COUNTS OF THE APPELLANT AND CONFIRMATION OF BALANCES FROM THEM. THEREAFTER THE AO HANDED THE LEDGER ACCOUNTS TO THE APPELLANT AND ASKED THE APPELLANT T O RECONCILE THE BALANCES AS APPEARING IN THE BOOKS OF THE PARTIES. THE APPEL LANT VIDE LETTERS DATED 7 TH DECEMBER 2009, FURNISHED THE RELEVANT RECONCILIATIO NS (PAGES 28 TO 79 OF COMPILATION) THEREAFTER, THE OFFICER HAS UNILATERALLY DRAWN INFE RENCE THAT CERTAIN DIFFERENCES REPRESENTED INCOME FOR THE APPELLANT U/ S 41(1). THE ADDITIONS HAVE BEEN MADE ON SHEER CONJECTURE. M/S. KNIGHT F RANK (INDIA) PVT. LTD. ITAS 2021 & 6286/MUM/2011 5 IT IS RELEVANT TO POINT OUT THAT NO OPPORTUNITY WHA TSOEVER WAS GIVEN BY THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEED INGS TO REBUT THE PRESUMPTIONS & CONJECTURES DRAWN BY HIM. AT NO TIME DURING THE ASSESSMENT PROCEEDINGS DID THE OFFICER CALL FOR AN EXPLANATION FOR THE DIFFERENCES. HAD THE ASSESSING OFFICER GRANTED THE APPELLANT ADEQUATE OP PORTUNITY TO JUSTIFY THE DIFFERENCES, IT WOULD HAVE BEEN EXPLAINED TO HIM TH AT THE CONJECTURES DRAWN BY HIM, AND CONSEQUENTIAL ADDITIONS ARE ERRONEOUS. FURTHER, THE APPELLANT COULD HAVE, IN RELEVANT CASES, REQUESTED FOR CROSS- EXAMINATION OF THE PARTIES CONCERNED. 6.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. LOOKING INTO THE NATURE OF THE LIABILITY AND FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER, I AGREE WITH THE ASSESSIN G OFFICER. TO THIS END, I FIND THAT THERE WERE DISTINCT DISCREPANCIES IN THE AMOUN T OF THE LIABILITY AS BOOKED BY THE APPELLANT AND THE OTHER PARTIES. THESE DISCR EPANCIES HAVE BEEN CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER IN PARA 7.1 OF HIS ORDER. THEY WERE NOT RECONCILED SATISFACTORILY. AS AGAINST THIS, THE APP ELLANTS EXPLANATION IS TOO GENERAL. ACCORDINGLY, I FIND THAT FOR THE REASONS M ENTIONED BY THE ASSESSING OFFICER, THE LIABILITIES HAVE CEASED TO EXIST. THE RATIO OF THE DECISION IN THE CASE OF CIT VS. MODERN FARM SERVICES 207 CTR 466 SUPPORT S THE ASSESSING OFFICERS CASE. FURTHER, I FIND THAT THE ASSESSING OFFICER HAD ASKED THE APPELLANT TO FURNISH THE RECONCILIATION AND ACCORDI NGLY, IT IS INCORRECT TO HOLD THAT NO OPPORTUNITY WAS GIVEN. IN LINES WITH THE FO REGOING, THE ADDITION U/S 41(1) IS CONFIRMED AND THE GROUND OF APPEAL IS DISM ISSED. 17. ACCORDING TO THE AR, IF THE AO FOUND DIFFERENCE IN ACCOU NTS, THE AO SHOULD HAVE CONFRONTED THE ASSESSEE, THIS WAS NOT DO NE AND THUS, THE ADDITION WAS IN VIOLATION OF NATURAL JUSTICE. 18. WE HAVE HEARD THE ARGUMENTS, SINCE THE GRIEVANCE OF THE ASSESSEE THAT THE AO DID NOT ALLOW THE CROSS EXAMINATION OF THE PARTIES, TO THE ASSESSEE, THE PRAYER OF THE AR, TO REST ORE THE ISSUE TO THE AO, WAS NOT OBJECTED TO BY THE DR. 19. IN THESE CIRCUMSTANCES, IN THE INTERESTS OF JUSTICE, WE RESTORE THE ISSUE TO THE FILE OF THE AO, WHO SHALL RE-EXAMINE THE APPLIC ABILITY OF SECTION 41(1) WITH RESPECT TO THE PARTIES NAMED IN THE A SSESSMENT ORDER. 20. GROUND NO. 7 IS CONSEQUENTIAL. 21. GROUND NO. 8 IS NOT PRESSED, HENCE DISMISSED. 22. APPEAL IS, THEREFORE, PARTLY ALLOWED M/S. KNIGHT F RANK (INDIA) PVT. LTD. ITAS 2021 & 6286/MUM/2011 6 ASSESSMENT YEAR 2008-09 : 23. GROUNDS NO. 1 TO 5 OF THIS APPEAL ARE IDENTICAL AS IN AS SESSMENT YEAR 2007-08 AND AS DEALT WITH BY US IN THIS ORDER. FOL LOWING THE LOGICAL CONCLUSION DRAWN AND DECISION TAKEN FOR ASSESSMENT YEAR 2007-08, WE DIRECT THE AO TO DELETE THE ADDITION. 24. AS A RESULT, GROUNDS NO. 1 TO 5 OF THE ASSESSEE S APPEAL ARE ALLOWED. 26. APPEAL, IS THEREFORE ALLOWED. IN THE RESULT APPEAL FILED BY THE ASSESSEE IN ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED AND APPEAL FILED BY THE ASSESSEE IN ASSESSMENT YEAR 2008-09 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2013. SD/- SD/- ( . ) ( #'' '$ ) ! ! (B. RAMAKOTAIAH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 10 TH JULY, 2013 / COPY TO:- M/S. KNIGHT F RANK (INDIA) PVT. LTD. ITAS 2021 & 6286/MUM/2011 7 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A)-1, MUMBAI. 4) & & ' DIT(E)/ CONCERNED , MUMBAI / THE DIT(E)/CONCERNED.., MUMBAI. 5) ,-. / 0 , & / , 12 / THE D.R. A BENCH, MUMBAI. 6) .3 4 COPY TO GUARD FILE. &56 / BY ORDER [ 7 / 8 9 & / , 12 DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *;<8 . . * CHAVAN, SR. PS