ACIT, CHENNAI V. M/s. SKI Retail Pvt. Ltd., CHENNAI

ITA 2276/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6447 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 02-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASISH TRIPATHI
• Assessee Lawyers: R SIVARAMAN
• Keywords: Reopening of assessment; Depreciation; Transfer pricing; Audit objection; International transaction; Reason to believe
• Section: 92E; 147; 148; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , ! .#$#%, ' !( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ./ ITA NO.2276/MDS/2016 & C.O. NO.129/MDS/2016 (IN I.T.A. NO.2276/MDS/2016) % *% / ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX (OSD), CORPORATE WARD 6(3), CHENNAI - 600 034. V. M/S SKI RETAIL CAPITAL LTD., NO.4, MOOKAMBIKA COMPLEX, LADY DESIKACHARY ROAD, CHENNAI - 600 004. PAN : AAGCS 0825 C (,-/ APPELLANT) ( RESPONDENT & CROSS-OBJECTOR) ,- . / / APPELLANT BY : SHRI ASISH TRIPATHI, JCIT 01,- . / / RESPONDENT BY : SHRI R. SIVARAMAN, ADVOCATE 2 . 3' / DATE OF HEARING : 22.06.2017 45* . 3' / DATE OF PRONOUNCEMENT : 10.08.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THE REVENUE HAS FILED THE APPEAL AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, D ATED 25.05.2016 AND PERTAINS TO ASSESSMENT YEAR 2007-08. THE ASSESSEE HAS ALSO FILED CROSS-OBJECTION AGAINST THE VERY SAME ORDER 2 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 OF THE CIT(APPEALS). THEREFORE, WE HEARD BOTH THE APPEAL AND THE CROSS-OBJECTION TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE ASSESSEE RAISED AN ISSUE WITH REGARD TO REOP ENING OF ASSESSMENT WHICH GOES TO THE ROOT OF THE MATTER. T HEREFORE, LETS FIRST TAKE THE CROSS-OBJECTION FILED BY THE ASSESSE E. 3. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ASSESSMENT WAS ORIGINALLY COMPLE TED BY AN ORDER DATED 25.11.2011 AFTER REOPENING. FOR THE SECOND T IME, THE ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUIN G A NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961 (IN S HORT 'THE ACT') ON 31.03.2014, AFTER EXPIRY OF FOUR YEARS. ACCORDING TO THE LD. COUNSEL, IMMEDIATE PROVOCATION OF DEPARTMENT TO REOPEN THE A SSESSMENT FOR SECOND TIME WAS THE AUDIT OBJECTION OF THE DEPARTME NT. REFERRING TO THE AUDIT OBJECTION, A COPY OF WHICH IS AVAILABLE A T PAGE 40 OF THE PAPER-BOOK, THE LD.COUNSEL SUBMITTED THAT THE ASSES SEE IS IN THE BUSINESS OF PROVIDING FINANCIAL AND MARKETING SERVI CES IN VARIOUS SECTORS. THE AUDIT PARTY OF THE DEPARTMENT FOUND T HAT ROAD SAFETY CLUB PVT. LTD. WAS IN THE BUSINESS OF SELLING SAFET Y CARDS. IT WAS ALSO FOUND THAT ALL EXPENSES ON SALARY, STAFF TRAIN ING, ETC. WERE 3 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 INCURRED BY THE ASSESSEE AT VARIOUS OFFICES AND REI MBURSED BY ROAD SAFETY CLUB PVT. LTD. THE AUDIT PARTY ULTIMATELY F OUND THAT AN AMOUNT OF ` 6,01,84,164/- HAS ESCAPED ASSESSMENT. 4. REFERRING TO A REPLY FILED BY THE ASSESSEE ON 04 .03.2014, A COPY OF WHICH IS AVAILABLE AT PAGE 43 OF THE PAPER- BOOK, THE LD.COUNSEL SUBMITTED THAT THE ASSESSING OFFICER IN CATEGORICAL TERMS REPLIED TO THE AUDIT WING OF THE DEPARTMENT THAT OU TSOURCING SOME OF THE ACTIVITIES OF BUSINESS IS QUITE COMMON IN COMME RCIAL PRACTICE. IN THE BALANCE SHEET OF ROAD SAFETY CLUB PVT. LTD., AN AMOUNT OF ` 6,01,84,164/- WAS REFLECTED UNDER THE HEAD OTHER A DVANCES AND IT WAS NOT CLAIMED AS EXPENDITURE. THE EXPENDITURE ACTUALLY INCURRED FOR SERVICES RENDERED BY THE ASSESSEE-COMP ANY, HAS BEEN DEBITED AND APPROPRIATED AGAINST THE ADVANCE RECEIV ED FROM ROAD SAFETY CLUB PVT. LTD. IN THE BOOKS OF THE ASSESSEE- COMPANY. SINCE IT IS A BUSINESS ARRANGEMENT BETWEEN SISTER CONCERN S TO REIMBURSE THE ACTUAL EXPENDITURE WITHOUT ANY MARKUP, THE DEPA RTMENT CANNOT SPECIFY THAT SUCH MARKUP IS NECESSARY. THE ASSESSI NG OFFICER HAS ALSO INFORMED THE AUDIT WING THAT THE OBSERVATION M ADE BY THE AUDIT WING IS NOT CORRECT AND REQUESTED THE AUDIT WING TO DROP THE AUDIT OBJECTION. AFTER REPLYING TO THE AUDIT WING, THE A SSESSING OFFICER HAS 4 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 REOPENED THE ASSESSMENT BY ISSUING NOTICE UNDER SEC TION 148 OF THE ACT. 5. REFERRING TO SECTION 147 OF THE ACT, THE LD.COUN SEL FOR THE ASSESSEE SUBMITTED THAT SECTION 147 CLEARLY SAYS TH AT IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO PROVISIONS OF SECTIONS 148 TO 153, ASSES S OR RE-ASSESS SUCH INCOME AND ALSO ANY OF THE INCOME CHARGEABLE T O TAX WHICH ESCAPED ASSESSMENT. IN THE CASE BEFORE US, THE ASS ESSING OFFICER FOUND THAT THE AUDIT OBJECTION RAISED BY THE AUDIT WING IS NOT CORRECT AND IT IS ONLY A REIMBURSEMENT OF EXPENDITURE. THE REFORE, IT CANNOT BE SAID THAT THERE WAS REASON TO BELIEVE THAT ANY I NCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. HENCE, A CCORDING TO THE LD. COUNSEL, THE REOPENING ITSELF IS NOT CORREC T, THEREFORE, THE CONSEQUENTIAL ASSESSMENT FRAMED BY THE ASSESSING OF FICER CANNOT STAND IN THE EYE OF LAW. 6. ON THE CONTRARY, SHRI ASISH TRIPATHY, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE AUDIT WING OF TH E DEPARTMENT HAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER THAT THERE WAS ESCAPEMENT OF INCOME TO THE EXTENT OF ` 6,01,84,164/-. THOUGH THE 5 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 ASSESSEE CLAIMS THAT IT WAS BUSINESS ARRANGEMENT BE TWEEN TWO SISTER CONCERNS, THE AUDIT PARTY FOUND THAT M/S ROA D SAFETY CLUB PVT. LTD. IS MAKING REIMBURSEMENT FOR THE EXPENSES INCURRED BY THE ASSESSEE-COMPANY YEAR AFTER YEAR. M/S ROAD SAFETY CLUB PVT. LTD. HAS NOT DEDUCTED ANY TAX TOWARDS PAYMENT MADE TO TH E ASSESSEE- COMPANY FOR THE SERVICE RENDERED. THE ENTIRE AMOUN T RECEIVED BY THE ASSESSEE-COMPANY WAS ONLY FOR RENDERING SERVICE , THEREFORE, THE ENTIRE SUM HAS TO BE BROUGHT TO TAX. ACCORDING TO THE LD. D.R., THE AUDIT PARTY OF THE DEPARTMENT IS ENTITLED TO BR ING TO THE NOTICE OF THE ASSESSING OFFICER THE FACTS OF THE CASE AND ALS O ESCAPEMENT OF INCOME, THEREFORE, THE ASSESSING OFFICER HAS TO APP LY HIS MIND INDEPENDENTLY AND REOPEN THE ASSESSMENT. IN THIS C ASE ALSO, ACCORDING TO THE LD. D.R., AFTER AUDIT OBJECTION, T HE ASSESSING OFFICER INDEPENDENTLY APPLIED HIS MIND TO ISSUE NOT ICE UNDER SECTION 148 OF THE ACT FOR REOPENING THE ASSESSMENT. ON A QUERY BY THE BENCH, THE LD. D.R. REPLIED THAT EVEN THOUGH INITIA LLY THE ASSESSING OFFICER FOUND THAT THE AUDIT OBJECTION IS NOT CORRE CT, SUBSEQUENTLY HE REALIZED THE MISTAKE AND ISSUED NOTICE UNDER SECTIO N 148 OF THE ACT. THEREFORE, THE REPLY FILED BY THE ASSESSING OFFICER CANNOT BE CONSTRUED THAT THE ASSESSING OFFICER HAS NOT SATISF IED HIMSELF ABOUT 6 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 THE INCOME ESCAPED FROM ASSESSMENT. HENCE, ACCORDI NG TO THE LD. D.R., THE ASSESSING OFFICER HAS RIGHTLY REOPENED TH E ASSESSMENT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 14 7 OF THE ACT WHICH READS AS FOLLOWS:- IF THE ASSESSING OFFICER, HAS REASON TO BELIEVE THA T ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMEN T AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURS E OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LO SS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS T HE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE R ELEVANT ASSESSMENT YEAR): PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE REL EVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THI S SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE R ELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REAS ON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A R ETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER S UB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRS T PROVISO SHALL APPLY IN A CASE WHERE ANY INCOME IN RELATION TO ANY ASSET (INCLUDING FINANCIAL INTEREST IN ANY ENTITY) LOCATE D OUTSIDE 7 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 INDIA, CHARGEABLE TO TAX, HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR : PROVIDED FURTHER THAT THE ASSESSING OFFICER MAY ASS ESS OR REASSESS SUCH INCOME, OTHER THAN THE INCOME INVOLVI NG MATTERS WHICH ARE THE SUBJECT-MATTERS OF ANY APPEAL, REFERE NCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HAS ESCAPE D ASSESSMENT. EXPLANATION 1. PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY TH E ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE W ITHIN THE MEANING OF THE FOREGOING PROVISO. EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY:-- (A) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INC OME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE U NDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMO UNT WHICH IS NOT CHARGEABLE TO INCOME-TAX; (B) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDERST ATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALL OWANCE OR RELIEF IN THE RETURN; (BA) WHERE THE ASSESSEE HAS FAILED TO FURNISH A REP ORT IN RESPECT OF ANY INTERNATIONAL TRANSACTION WHICH HE W AS SO REQUIRED UNDER SECTION 92E ; (C) WHERE AN ASSESSMENT HAS BEEN MADE, BUT-- (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED ; OR (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RAT E; OR (III) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCES SIVE RELIEF UNDER THIS ACT; OR 8 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 (IV) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED. (D) WHERE A PERSON IS FOUND TO HAVE ANY ASSET (INCL UDING FINANCIAL INTEREST IN ANY ENTITY) LOCATED OUTSIDE I NDIA. EXPLANATION 3. FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDER THIS SECTION, THE ASSESSING OFFI CER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISS UE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB -SECTION (2) OF SECTION 148. EXPLANATION 4. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE PROVISIONS OF THIS SECTION, AS A MENDED, BY THE FINANCE ACT, 2012, SHALL ALSO BE APPLICABLE FOR A NY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2012. 8. FOR REOPENING ASSESSMENT, IT IS MANDATORY THAT T HE ASSESSING OFFICER HAS REASON TO BELIEVE THAT THE IN COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN THE CASE BEFORE US, THE AUDIT WING OF THE DEPARTMENT BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER THAT AN AMOUNT OF ` 6,01,84,164/- ESCAPED ASSESSMENT. IMMEDIATELY AFTER RECEIPT OF AUDIT OBJECTION, THE A SSESSING OFFICER VIDE HER LETTER DATED 04.03.2014 INFORMED THE AUDIT WING OF THE DEPARTMENT THAT THE ENTIRE WORK OF ROAD SAFETY CLUB PVT. LTD. WAS CARRIED OUT BY THE ASSESSEE-COMPANY ONLY IS NOT COR RECT. ENCLOSING THE PROFIT & LOSS ACCOUNT OF ROAD SAFETY CLUB PVT. LTD., THE ASSESSING OFFICER REQUESTED THE AUDIT WING OF THE D EPARTMENT TO 9 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 DROP THE AUDIT OBJECTION. THEREFORE, IT IS OBVIOUS THAT THE ASSESSING OFFICER AFTER APPLYING HIS MIND FOUND THAT THERE WA S NO ESCAPEMENT OF INCOME. SUBSEQUENTLY, THE ASSESSING OFFICER ISS UED NOTICE UNDER SECTION 148 OF THE ACT FOR REOPENING THE ASSESSMENT . THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS NOT INDEPENDENTLY SATISFIED HIMSELF ABOUT THE E SCAPEMENT OF INCOME. 9. THE PROCEEDING BEFORE THE ASSESSING OFFICER IS A JUDICIAL PROCEEDING UNDER SECTION 136 OF THE ACT. THEREFORE , THE REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT HAS TO BE THAT OF THE ASSESSING OFFICER AND NOT THAT OF ANY OTHER OFF ICER OF THE DEPARTMENT. IN THE CASE BEFORE US, THE ASSESSING O FFICER CAME TO A CONCLUSION AFTER CONSIDERING THE AUDIT OBJECTION, T HAT THERE WAS NO ESCAPEMENT OF INCOME. THEREFORE, IT CANNOT BE SAID THAT THE AUDIT WING OF THE DEPARTMENT HAS MERELY BROUGHT TO THE NO TICE OF THE ASSESSING OFFICER THE FACT OF ESCAPEMENT OF INCOME. ONCE, THE ASSESSING OFFICER IS NOT SATISFIED ABOUT ESCAPEMENT OF INCOME AND REQUESTED THE AUDIT WING TO DROP THE PROCEEDING, HE CANNOT CHANGE HIS MIND SUBSEQUENTLY AND ISSUE NOTICE UNDER SECTIO N 148 OF THE ACT FOR REOPENING ASSESSMENT. NO MATERIAL IS AVAIL ABLE ON RECORD TO SUGGEST THAT THE ASSESSING OFFICER REOPENED THE ASS ESSMENT DUE TO 10 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 CHANGE OF CIRCUMSTANCES AFTER THE REPLY DATED 04.03 .2014 REQUESTING THE AUDIT WING OF THE DEPARTMENT TO DROP THE AUDIT OBJECTION. IN THE ABSENCE OF ANY MATERIAL, THIS TR IBUNAL IS OF THE CONSIDERED OPINION THAT THE REOPENING OF ASSESSMENT IS NOT JUSTIFIED. THEREFORE, THE CONSEQUENTIAL ASSESSMENT ORDER PASSE D BY THE ASSESSING OFFICER CANNOT STAND IN THE EYE OF LAW. ACCORDINGLY, THE ORDER OF THE ASSESSING OFFICER IS QUASHED. 10. IN VIEW OF THE DECISION TAKEN IN THE CROSS-OBJE CTION FILED BY THE ASSESSEE, IT MAY NOT BE NECESSARY TO GO INTO TH E MERIT OF THE APPEAL FILED BY THE REVENUE. ACCORDINGLY, THE APPE AL IS DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED WHEREAS, THE CROSS-OBJECTION FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED ON 10 TH AUGUST, 2017 AT CHENNAI. SD/- SD/- ( ! .#$#% ) ( . . . ) (ABRAHAM P. GEORGE) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 10 TH AUGUST, 2017. KRI. 11 I.T.A. NO.2276/MDS/16 C.O. NO.129/MDS/16 . 0389 :9*3 /COPY TO: 1. ,- /APPELLANT 2. 01,- /RESPONDENT 3. 2 ;3 () /CIT(A)-15, CHENNAI-34 4. 2 ;3 /CIT-6, CHENNAI-34 5. 9< 03 /DR 6. =% > /GF.