M/s. Norwich Clinical Services Pvt. Ltd.,(Formerly Lotus Clinical Services Pvt. Ltd.), Bengaluru V. Income-Tax Officer, Ward-11(2), Bengaluru

ITA 227/BANG/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4740 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 29-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SANDEEP GOEL BENGALURU
• Assessee Lawyers: G S PRASHANTH
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 227/BANG/2018 ASSESSMENT YEAR : 2011 - 12 M/S. NORWICH CLINICAL SERVICES PVT. LTD., (FORMERLY LOTUS CLINICAL RESEARCH ACADEMY PVT. LTD.), NO.147/F, GROUND & FIRST FLOOR, 8 TH MAIN, 3 RD BLOCK, KORAMANGALA, BENGALURU 560 034. PAN: AA DCN 1161B VS. THE INCOME TAX OFFICER, WARD 11(2), BANGALORE. APP ELL ANT RESPONDENT A PP EL LANT BY : SHRI G.S . PRASHANTH, CA RE SPONDENT BY : DR. SANDEEP GOEL, ADDL .CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 21. 0 5 .201 8 DATE OF PRONOUNCEMENT : 01. 0 6 .201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 07.12.2017 OF THE CIT(APPEALS), BANGALORE-9, BANGAL ORE RELATING TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF CARRYING OUT CLINICAL RESEARCH AND TRAINING. IN TH E ASSESSMENT COMPLETED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 [THE ACT] , THE AO IN HIS ORDER DATED 28.02.2014 MADE TWO ADDITIONS TO THE INCOME D ECLARED IN THE RETURN OF INCOME BY THE ASSESSEE VIZ; ITA NO.227/BANG/2018 PAGE 2 OF 8 (I) AN ADDITION OF RS.25,92,453/- BY WAY OF DISALLO WANCE U/S. 40(A)(IA) OF EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT FOR N ON-DEDUCTION OF TAX AT SOURCE; AND (II) DISALLOWANCE OF REMUNERATION PAID TO TWO DIREC TORS U/S. 40A(2)(B) OF THE ACT ON THE GROUND THAT THE DIRECTORS WERE HAVIN G SUBSTANTIAL INTEREST IN THE ASSESSEE AND THAT THE REMUNERATION PAID WAS EXCESSIVE AND UNREASONABLE. 3. THE ASSESSEE FILED AN APPLICATION U/S. 154 OF TH E ACT ON 01.04.2014 POINTING OUT THAT TAX HAD IN FACT BEEN DEDUCTED AT SOURCE AND REMITTED TO THE CREDIT OF THE CENTRAL GOVT. AND THEREFORE, THE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT WAS AN ERROR APPARENT ON THE FACE OF THE ORDER U/S. 143(3) OF THE ACT. THE ASSESSEE ALSO SUBMITTED THAT THE DISALLOW ANCE U/S. 40A(2)(B) OF THE ACT SHALL BE DELETED BECAUSE THE REMUNERATION P AID TO THE DIRECTORS WAS REASONABLE CONSIDERING THE NATURE OF SERVICES RENDE RED BY THEM AND THE BENEFIT DERIVED BY THE ASSESSEE. 4. THOUGH APPLICATION U/S. 154 OF THE ACT WAS FILED ON 01.04.2014, THE AO DID NOT PASS ANY ORDER ON THE SAME. 5. THE ORDER OF ASSESSMENT U/S. 143(3) OF THE ACT D ATED 28.02.2014 WAS SERVED ON THE ASSESSEE ON 18.03.2014. THE ASS ESSEE COULD FILE AN APPEAL AGAINST THE SAID ORDER BEFORE THE CIT(APPEAL S) AND THE TIME LIMIT FOR FILING SUCH APPEAL WAS 1.04.004. THE ASSESSEE IN T HE HOPE THAT THE GRIEVANCE PROJECTED BY HIM IN THE APPLICATION FOR R ECTIFICATION U/S. 154 OF THE ACT WOULD BE ACCEPTED, DID NOT FILE APPEAL BEFORE T HE CIT(APPEALS). 6. AFTER WAITING SUFFICIENTLY IN THE HOPE THAT ITS APPLICATION U/S. 154 OF THE ACT WOULD BE ALLOWED AND SINCE THE AO DID NOT P ASS ANY SUCH ORDER, THE ASSESSEE FILED APPEAL BEFORE THE CIT(APPEALS) O N 16.02.2015. THERE WAS A DELAY OF ABOUT 305 DAYS IN FILING THE APPEAL BEFORE THE CIT(APPEALS). ITA NO.227/BANG/2018 PAGE 3 OF 8 THE REASONS FOR THE DELAY IN FILING THE APPEAL WAS EXPLAINED BY THE ASSESSEE AS OWING TO ITS PURSUING ALTERNATIVE REMED Y ON ITS GRIEVANCE PROJECTED IN THE APPEAL BEFORE THE CIT(A) IN THE FO RM OF AN APPLICATION U/S. 154 OF THE ACT. THE ASSESSEE EXPLAINED THAT SINCE NO ORDER U/S. 154 OF THE ACT WAS PASSED BY THE AO DESPITE LAPSE OF CONSIDERA BLE TIME, THE ASSESSEE DECIDED TO FILE THE APPEAL. 7. THE CIT(APPEALS) DID NOT ACCEPT THE REASONS ASSI GNED FOR THE DELAY IN FILING THE APPEAL AND HE HELD THAT THE ASSESSEE SHOULD HAVE BEEN DILIGENT AND SHOULD HAVE ALSO FILED APPEAL BEFORE CIT(A) IN ADDITION TO FILING APPLICATION FOR RECTIFICATION U/S. 154 OF THE ACT. THE CIT(APPEALS) DISMISSED THE APPEAL OF THE ASSESSEE BY REFUSING TO CONDONE T HE DELAY IN FILING THE APPEAL. 8. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVA L SUBMISSIONS. THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACT S OF THE CASE DECIDED BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF BHARAT AUTO CENTRE VS. CIT 282 ITR 366 (ALL) . THE FACTS IN THAT CASE WERE THAT THE ASSESSMENT ORDER DT. 27TH MARCH, 2000, PASSED BY THE ITO, GHAZIPUR F OR THE ASST. YR. 1997-98 WAS SERVED UPON THE APPELLANT ON 18TH MARCH, 2000 A ND, THEREFORE, THE LIMITATION FOR FILING THE APPEAL WAS UPTO 17TH APRI L, 2000, WHILE THE APPEAL WAS FILED ON 29TH SEPT., 2000 BEYOND TIME BY 158 DA YS. THE APPELLANT FILED APPLICATION UNDER SECTION 5 OF THE LIMITATION ACT F OR CONDONATION OF DELAY. IN THE APPLICATION, IT WAS EXPLAINED THAT SINCE IN THE CASE LEGAL AND IMPORTANT POINT RELATING TO THE JURISDICTION OF THE ASSESSING AUTHORITY WAS INVOLVED, THE LOCAL COUNSEL SRI SATENDRA PRASAD, AD VOCATE RUSHED WITH THE ORDER TO THE COUNSEL OF THE HIGH COURT TO SEEK THE OPINION ON THE POINT. THE MATTER WAS CONSULTED WITH SEVERAL COUNSEL INCLUDING THE RETIRED JUDGES AND IT WAS ADVISED TO FILE WRIT PETITION. THE WRIT PETI TION WAS ALSO PREPARED BY SRI SHAKEEL AHMAD, ADVOCATE, BUT SUBSEQUENTLY, THE LOCA L COUNSEL SRI ITA NO.227/BANG/2018 PAGE 4 OF 8 SATENDRA PRASAD THOUGHT TO MOVE AN APPLICATION UNDE R SECTION 154 OF THE ACT FOR RECTIFICATION OF THE ORDER. THUS, THE PROCE EDING TOOK A LONG TIME WHICH RESULTED IN THE DELAY IN FILING THE APPEAL. I T WAS SUBMITTED THAT THE DELAY WAS NOT CAUSED INTENTIONALLY OR NEGLIGENTLY. THE CIT(A) HAS REFUSED TO CONDONE THE DELAY AND THE ORDER OF THE CIT(A) WA S CONFIRMED BY THE TRIBUNAL. ON FURTHER APPEAL BY THE ASSESSEE, THE H ONBLE ALLAHABAD HIGH COURT, AFTER EXTENSIVE REVIEW OF CASES ON THE ISSUE OF CONDONATION OF DELAY, HELD THAT THE CIT(A) AND TRIBUNAL WERE NOT RIGHT IN REFUSING TO CONDONE THE DELAY IN FILING APPEAL. THE FOLLOWING WERE THE REL EVANT OBSERVATIONS OF THE HONBLE COURT: 5. HAVING (HEARD) THE LEARNED COUNSEL FOR THE PAR TIES, WE ARE OF THE OPINION THAT THE CIT(A) AS WELL AS TRIBUNAL HAVE TAKEN PEDANTIC VIEW WHILE CONSIDERING THE APPLICATION FOR CONDONATION OF DELAY. IT HAS BEEN CONSISTENTLY HELD BY THE APEX COURT THAT IN THE MATTER OF CONDONATION OF DELAY, A LIBERAL AND P RAGMATIC VIEW SHOULD BE TAKEN. THE REASONS GIVEN BY THE APPELLANT FOR THE DELAY APPEAR TO BE SUFFICIENT CAUSE AND, ACCORDINGL Y, THE DELAY IS LIABLE TO BE CONDONED. 6. THE LAW OF LIMITATION IS ENSHRINED IN THE MAXIM INTEREST REIPUBLICAE UP SIT FINIS LITIUM (IT IS FOR THE GENE RAL WELFARE THAT A PERIOD BE PUT TO LITIGATION). RULES OF LIMITATION A RE NOT MEANT TO DESTROY THE RIGHTS OF THE PARTIES, RATHER THE IDEA IS THAT EVERY LEGAL REMEDY MUST BE KEPT ALIVE FOR A LEGISLATIVELY FIXED PERIOD OF TIME. 7. IN THE CASE OF COLLECTOR, LAND ACQUISITION V. MST . KATIJI AND ORS. 1987 (13) AIR 306 (SC), HON'BLE SUPREME CO URT HELD AS FOLLOWS : THE LEGISLATURE HAS CONFERRED THE POWER TO CONDONE DELAY BY ENACTING SECTION 5 OF THE LIMITATION ACT OF 1963 IN ORDER TO ENABLE THE COURTS TO DO SUBSTANTIAL JUSTIC E TO PARTIES BY DISPOSING OF MATTERS ON 'MERITS'. THE EX PRESSION 'SUFFICIENT CAUSE' EMPLOYED BY THE LEGISLATURE IS A DEQUATELY ELASTIC TO ENABLE THE COURTS TO APPLY THE LAW IN A MEANINGFUL MANNER WHICH SUBSERVES THE ENDS OF JUSTI CE-- THAT BEING THE LIFE-PURPOSE OF THE EXISTENCE OF THE INSTITUTION OF COURTS. IT IS COMMON KNOWLEDGE THAT THIS ITA NO.227/BANG/2018 PAGE 5 OF 8 COURT HAS BEEN MAKING A JUSTIFIABLY LIBERAL APPROAC H IN MATTERS INSTITUTED IN THIS COURT. BUT THE MESSAGE D OES NOT APPEAR TO HAVE PERCOLATED DOWN TO ALL THE OTHER COU RTS IN THE HIERARCHY. AND SUCH A LIBERAL APPROACH IS ADOPTED ON PRINCIPLE AS IT IS REALIZED THAT : 1. ORDINARILY, A LITIGANT DOES NOT STAND TO BENEFIT BY LODGING AN APPEAL LATE. 2. REFUSING TO CONDONE DELAY CAN RESULT IN A MERITORIOUS MATTER BEING THROWN OUT AT THE VERY THR ESHOLD AND CAUSE OF JUSTICE BEING DEFEATED. AS AGAINST THIS , WHEN DELAY IS CONDONED, THE HIGHEST THAT CAN HAPPEN IS T HAT A CAUSE WOULD BE DECIDED ON MERITS AFTER HEARING THE PARTIES. 3. 'EVERY DAY'S DELAY MUST BE EXPLAINED' DOES NOT MEAN THAT A PEDANTIC APPROACH SHOULD BE MADE. WHY NOT EV ERY HOUR'S DELAY, EVERY SECOND'S DELAY ? THE DOCTRINE M UST BE APPLIED IN A RATIONAL, COMMON SENSE AND PRAGMATIC MANNER. 4. WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OTHER, THE C AUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED, FOR T HE OTHER SIDE CANNOT CLAIM TO HAVE VESTED RIGHT IN INJUSTICE BEING DONE BECAUSE OF A NON-DELIBERATE DELAY. 5. THERE IS NO PRESUMPTION THAT DELAY IS OCCASIONE D DELIBERATELY, OR ON ACCOUNT OF CULPABLE NEGLIGENCE, OR ON ACCOUNT OF MALA FIDES. A LITIGANT DOES NOT STAND TO BENEFIT BY RESORTING TO DELAY. IN FACT, HE RUNS A SERIOUS R ISK. 6. IT MUST BE GRASPED THAT THE JUDICIARY IS RESPEC TED NOT ON ACCOUNT OF ITS POWER TO LEGALISE INJUSTICE ON TE CHNICAL GROUNDS BUT BECAUSE IT IS CAPABLE OF REMOVING INJUS TICE AND IS EXPECTED TO DO SO. 8. IN N. BALAKRISHNAN V. M. KRISHNAMURTHY , THE AP EX COURT EXPLAINED THE SCOPE OF LIMITATION AND CONDONA TION OF DELAY, OBSERVING AS UNDER : ITA NO.227/BANG/2018 PAGE 6 OF 8 THE PRIMARY FUNCTION OF A COURT IS TO ADJUDICATE TH E DISPUTE BETWEEN THE PARTIES AND TO ADVANCE SUBSTANT IAL JUSTICE. THE TIME-LIMIT FIXED FOR APPROACHING THE C OURT IN DIFFERENT SITUATIONS IS NOT BECAUSE ON THE EXPIR Y OF SUCH TIME A BAD CAUSE WOULD TRANSFORM INTO A GOOD CAUSE. RULES OF LIMITATION ARE NOT MEANT TO DESTROY THE RIGHTS OF PARTIES. THEY ARE MEANT TO SEE THAT PARTI ES DO NOT RESORT TO DILATORY TACTICS, BUT SEEK THEIR REME DY FOR THE REDRESS OF THE LEGAL INJURY SO SUFFERED. THE LA W OF LIMITATION IS THUS FOUNDED ON PUBLIC POLICY. 9. IN SMT. PRABHA V. RAM PRAKASH KALRA 1987 (SUPP L.) SCC 339, THE SUPREME COURT TOOK THE VIEW THAT THE C OURT SHOULD NOT ADOPT AN INJUSTICE-ORIENTED APPROACH IN REJECTING THE APPLICATION FOR CONDONATION OF DELAY. 10. IN VEDABAI ALIAS VAIJAYANATABAI BABURAO PATIL V. SHANTARAM BABURAO PATIL 2001 (44) ALR 577 (SC), THE APEX COURT MADE A DISTINCTION IN DELAY AND INORDINA TE DELAY OBSERVING AS UNDER : IN EXERCISING DISCRETION UNDER SECTION 5 OF THE LIMITATION ACT, THE COURTS SHOULD ADOPT A PRAGMATIC APPROACH. A DISTINCTION MUST BE MADE BETWEEN A CASE WHERE THE DELAY IS INORDINATE AND A CASE WHERE THE DELAY IS OF A FEW DAYS. WHEREAS IN THE FORMER CASE THE CONSIDERATION OF PREJUDICE TO THE OTHER SIDE WILL B E A RELEVANT FACTOR SO THE CASE CALLS FOR A MORE CAUTIO US APPROACH.... 11. IN NEW INDIA INSURANCE CO. LTD. V. SMT. SHANTI MISRA , HON'BLE SUPREME COURT HELD THAT DISCRETION GIVEN BY SECTION 5 SHOULD NOT BE DEFINED OR CRYSTALLIZED SO AS TO CONVERT A DISCRETIONARY MATTER INTO A RIGID RULE OF LAW. THE EXPRESSION 'SUFFICIENT CAUSE' SHOULD RECEIVE A LIBE RAL CONSTRUCTION. 12. IN BRIJI INDER SINGH V. KANSHI RAM AIR 1917 PC 156, IT WAS OBSERVED THAT TRUE GUIDE FOR A COURT TO EXERCIS E THE DISCRETION UNDER SECTION 5 IS WHETHER THE APPELLANT ACTED WITH REASONABLE DILIGENCE IN PROSECUTING THE APPEAL . 13. IN SHAKUNTALA DEVI JAIN V. KUNTAL KUMARI , THE HON'BLE SUPREME COURT HELD THAT UNLESS WANT OF BONA FIDES OF SUCH INACTION OR NEGLIGENCE AS WOULD DEPRI VE A ITA NO.227/BANG/2018 PAGE 7 OF 8 PARTY OF THE PROTECTION OF SECTION 5 IS PROVED, THE APPLICATION MUST NOT BE THROWN OUT OR ANY DELAY CAN NOT BE REFUSED TO BE CONDONED. 14. IN O.P. KATHPALIA V. LAKHMIR SINGH , THE HON'BL E SUPREME COURT HELD THAT IF THE REFUSAL TO CONDONE T HE DELAY RESULTS IN GRAVE MISCARRIAGE OF JUSTICE, IT W OULD BE A GROUND TO CONDONE THE DELAY. 15. IN STATE OF HARYANA V. CHANDRAMANI , HON'BLE SUPREME COURT CONSIDERED LARGE NUMBER OF ITS EARLIE R JUDGMENTS INCLUDING BINOD BIHARI SINGH V. UNION OF INDIA , SHAKAMBARI & CO. V. UNION OF INDIA 1993 (SU PPL.) (1) SCC 487, WARLU V. GANGOTRIBAI 1995 (SUPPL.) (1) SCC 37, RAMLAL, MORTAL & CHHOTELAL V. REWA COALFIELDS L TD. , CONCORD OF INDIA INSURANCE CO. LTD. V. SMT. NIRMA LA DEVI , LALA MATE DIN V. A. NARAYANAN , AND HELD THA T EXPRESSION 'EACH DAY'S DELAY MUST BE EXPLAINED', DO ES NOT MEAN THAT A PEDANTIC APPROACH SHOULD BE MADE AND IT MUST BE APPLIED IN A RATIONAL COMMON SENSE PRAGMATI C MANNER. 9. THE AFORESAID VIEW WAS AGAIN REITERATED BY THE H ONBLE ALLAHABAD HIGH COURT IN THE CASE OF SUBHASH MALIK VS. CIT 325 ITR 243(ALL). THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SHANMUGHAVEL NADAR 153 ITR 596 (MAD) HELD THAT DELAY CAUSED BY PURSUING AN ALTERNATIVE REMEDY IS SUFFICIENT CAUSE FOR CONDONING DELAY. 10. IN THE LIGHT OF THE PRECEDENTS ON THE ISSUE REN DERED ON IDENTICAL FACTS, WE ARE OF THE VIEW THAT THE CIT(A) FELL INTO AN ERROR IN REFUSING TO CONDONE THE DELAY. WE CONDONE THE DELAY IN FILING APPEAL BEFORE CIT(A). SINCE THE CIT(A) HAS NOT ADJUDICATED THE APPEAL ON MERITS, WE DIRECT THE CIT(A) TO ADJUDICATE THE APPEAL OF THE ASSESSEE ON MERITS ON THE ISSUES RAISED BY THE ASSESSEE BEFORE CIT(A). ITA NO.227/BANG/2018 PAGE 8 OF 8 11. IN THE RESULT, APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JUNE, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 1 ST JUNE, 2018. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.