The ACIT, Circle-1, Ahmedabad V. M/s. Arvind Ltd., (Formerly known as Arvind Mills Ltd.,), Ahmedabad

ITA 2392/AHD/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3726 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 26-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V R CHOKSHI
• Keywords: Business income; Double taxation relief; Audit objection; Permanent establishment; Assessment record; TDS
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ I.T.A. NO.2392/AHD/2014 ( / ASSESSMENT YEAR : 2003-04) THE ACIT CIRCLE-1 AHMEDABAD / VS. M/S.ARVIND LTD. (FORMERLY KNOWN AS ARVIND MILLS LTD.) NARODA ROAD AHMEDABAD ./ ./ PAN/GIR NO. : AABCA 2398 D ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S.K. DEV, SR.DR / RESPONDENT BY : SHRI V.R. CHOKSHI, AR / DATE OF HEARING 14/02/2019 !'# / DATE OF PRONOUNCEMENT 15/02/2019 / O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER : THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF T HE REVENUE AGAINST THE ORDER OF LD.COMMISSIONER OF INCOME TAX (APPEALS)-VI, AHMEDABAD [CIT(A) IN SHORT] DATED 30/06/2014 PASSED FOR ASS ESSMENT YEAR (AY) 2003-04. ITA NO.2392/AHD /2014 ACIT VS. ARVIND LTD. ASST.YEAR 2003-04 - 2 - 2. THE SOLITARY GROUND OF APPEAL PROJECTS THE GRIEV ANCE OF REVENUE AS UNDER: (1) THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN ANNULL ING THE ORDER U/S.143(3) R.W.S.147 OF THE ACT PARTICULARLY WHEN T HE ASSESSEE HAS NOT OBJECTED THE RE-OPENING OF ASSESSMENT. (2) THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ADJ UDICATING ON MERIT THE GROUND RELATES TO DISALLOWANCE OF NON-DED UCTION OF TDS OF RS.1,82,66,292/- MADE BY THE AO. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TEXTILE, GARMENTS, TELECOMMUNICATION AN D FILED ITS RETURN OF INCOME ON 31/01/2002 DECLARING TOTAL INCOME AT NIL AND BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). AN ASSESSMENT ORDER WAS PASSED U/S.143(3) O F THE ACT ON 31/03/2006 DETERMINING TOTAL INCOME OF NIL. THE ASSESSING OFFICER THEREAFTER INITIATED RE-ASSESSMENT PROCEEDINGS BY R ECORDING FOLLOWING REASONS: 'ASSESSMENT OF NON-RESIDENT AND FOREIGN COMPANIES IS GOVERNED BY THE INCOME -TAX ACT AS WELL AS DTAAS. SECTION 90(2) PROVIDES MAT A TREATY OVERRIDES THE PROVISIONS OF THE ACT AND IN CASES WHERE THE PROVISIONS OF THE ACT ARE MORE BENEFICIAL, THE LATTER SHALL APPLY. CONSEQUENTLY, EVEN THOUGH IN THE CASE OF FOREIGN COMPANIES, BUSINESS INCOME MAY ACCRUE OR ARISE IN INDIA THE SAME SHALL NOT BE TAXABLE IN INDIA UNLESS THERE IS A PERMANENT ESTABLISHMENT (PE) IN TERMS OF THE RELEVANT TREATY. PE IS DEFINED AND EXPLAINED IN THE ARTICLES 5 OF EACH TREATY TO W HICH INDIA IS A SIGNATORY. THE TAX MAY BE LEVIABLE ONLY IN RESPECT OF THE INCOME ATTRI BUTABLE TO THE PE. HOWEVER, ROYALTIES, FEES FOR TECHNICAL SERVICES, INTEREST IN COME AND DIVIDENDS ARISING IN INDIA ARE TAXABLE IN INDIA EVEN IN THE ABSENCE OF A PE OF THE FOREIGN COMPANY. ITA NO.2392/AHD /2014 ACIT VS. ARVIND LTD. ASST.YEAR 2003-04 - 3 - THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF TEX TILE, GARMENTS AND TELECOMMUNICATIONS FILED THE RETURN OF INCOME FOR T HE YEAR AY. 2003-04 DECLARING NIL INCOME. THE CASE WAS SELECTED FOR SCRUTINY AND FINA LIZED U/S 143(3) OF THE I.T. ACT, ASSESSING THE INCOME AT RS. NIL. DURING AUDIT SCRUTINY OF THE ASSESSMENT RECORD IT W AS SEEN FROM THE EXPENDITURE IN FOREIGN CURRENCY AT SL.NO.27 OF NOTES FORMING PARTS OF ACCOUNTS AT PAGE NO.40 OF THE ANNUAL REPORT THAT THE ASSESSEE HAD INCURRED EXPEND ITURE OF RS.2.02 CRORES ON PROFESSIONAL CONSULTATION FEES. THE ASSESSEE HAD PA ID PROFESSIONAL CONSULTATION FEES TO VARIOUS PARTIES IN DHAKA, SWISS, GERMANY, PHILIP PINES, BELGIUM, U.K., U.S.A AND HONG KONG. AS INDIA HAS DTAA WITH ALL THESE COUNTRI ES, THE ASSESSEE WAS LIABLE TO DEDUCT TDS ON PROFESSIONAL CONSULTANCY FEES AS PER SECTION 195, EITHER IN ACCORDANCE WITH DTAA WITH RESPECTIVE COUNTRIES OR I NCOME TAX ACT WHICHEVER IS APPLICABLE. THE RATES OF TDS ARE SPECIFIED IN THE R ESPECTIVE DTAA'S. HOWEVER, IT WAS SEEN THAT THE ASSESSEE HAD NOT DEDUCTED TDS ON PROF ESSIONAL CONSULTANCY FEES. FAILURE TO DEDUCT TDS ON PROFESSIONAL CONSULTANCY F EES RESULTED IN NON LEVY OF TDS OF RS.4011817 SHOWN BELOW: (IN RUPEES) NAME OF COUNTRY AMOUNT PAID RATES OF TDS AMOUNT OF TDS TO BE DEDUCTED NON LEVY OF TDS DHAKA 224885 10% 22489 22489 SWISS 257043 10% 25074 25074 U.K. 6256100 15% 938415 938415 PHILIPPINES 40522 15% 6078 6078 U.S.A. 8544856 15% 1281728 1281728 HONG KONG 431118 10% 43112 43112 GERMANY 1617314 10% 161731 161731 BELGIUM 894454 10% 89445 89445 TOTAL 2568702 ITA NO.2392/AHD /2014 ACIT VS. ARVIND LTD. ASST.YEAR 2003-04 - 4 - AS SEEN FROM THE ABOVE TABLE THERE WAS TOTAL SHORT LEVY OF RS.11,54,300/-. IN VIEW OF THE SAME, THE PROVISION OF SEC.40(A)(I), TH E CONCERNED PAYMENTS OF PROFESSIONAL CONSULTANCY FEES ARE NOT ALLOWABLE. 4. AFTER HEARING OF THE ASSESSEE, LD.AO PASSED TH E ASSESSMENT ORDER ON 21/12/2010 U/S.143(3) R.W.S.147 OF THE ACT. HE MAD E DISALLOWANCE OF RS.1,82,66,292/- ON ACCOUNT OF NON-DEDUCTION OF TDS BY THE ASSESSEE WHILE MAKING PAYMENTS TO FOREIGN CONSULTANT. 5. DISSATISFIED WITH THE ACTION OF ASSESSING OFFICE R, ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). IT HAS CHALLENGED RE OPENING OF THE ASSESSMENT PROCEEDINGS. IT WAS CONTENDED THAT NOTI CE U/S.148 OF THE ACT WAS ISSUED AFTER EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR AND ASSESSING OFFICER FAILED TO POINT OUT WHIC H MATERIAL FACT WAS NOT DISCLOSED BY THE ASSESSEE FULLY AND TRULY. THE LD .FIRST APPELLATE AUTHORITY ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND QUASHE D THE REASSESSMENT ORDER. THE RELEVANT FINDING RECORDED BY THE LD.CIT (A) READS AS UNDER: 4.2. AS SEEN FROM IMPUGNED ORDER THE RETURN OF INCOME WAS FILED ON 31-10- 2002. ASSESSMENT ORDER U/S.143(3) WAS PASSED ON 31 -03-2006. NOTICE U/S.148 WAS ISSUED AND SERVED ON 31-03-2010. COPY OF THE R EASONS RECORDED FOR RE- OPENING WAS FURNISHED TO THE APPELLANT ON 28-10-201 0. 4.3. THE CONTENTIONS OF THE LD.AR ARE THAT THOUGH T HE NOTICE U/S.148 WAS SERVED WITH 6 YEARS FROM THE END OF THE ASSESSMENT YEAR, COPY OF THE REASONS RECORDED WAS FURNISHED BEYOND 6 YEARS FROM THE END OF THE ASSESSMENT YEAR ITA NO.2392/AHD /2014 ACIT VS. ARVIND LTD. ASST.YEAR 2003-04 - 5 - AND THEREFORE RE-OPENING IS BAD-IN-LAW. IN SUPPORT THEREOF RELIANCE WAS PLACED ON TWO DECISIONS OF THE DELHI TRIBUNAL. IT WAS FURTHER CONTENDED BY THE AR THAT THE RE-OPENING WAS DONE RELYING ON THE AUDI T SCRUTINY OF ANNUAL ACCOUNTS FILED BY THE APPELLANT DURING THE COURSE O F ASSESSMENT PROCEEDINGS U/S.143(3); THUS APPELLANT MADE FULL AND TRUE DISCL OSURE OF ALL MATERIAL FACTS; THERE WAS NO FAILURE ON THE PART OF THE APPELLANT A ND THEREFORE RE-OPENING THE ASSESSMENT BEYOND 4 YEARS WAS BAD-IN-LAW. IN SUPPO RT THEREOF HE RELIED ON FOUR HIGH COURT DECISION [INCLUDING ONE GUJ.HIGH CO URT DECISION] AND ONE SUPREME COURT DECISION. IT WAS CONTENDED FURTHER T HAT AS MAY BE SEEN FROM THE REASONS RECORDED FROM THE RE-OPENING ASSESSMENT , AO HAD RELIED ON THE AUDIT SCRUTINY; AO FAILED TO FORM HIS OWN OPINION REGARDING THE ESCAPEMENT OF THE INCOME; THEREFORE RE-OPENING THE ASSESSMENT SOL ELY ON ACCOUNT OF AUDIT OBJECTION/OBSERVATION IS BAD-IN-LAW. IN SUPPORT TH EREOF HE RELIED ON TO THREE DECISIONS OF THE GUJ.HIGH COURT AND ON DECISION OF THE JAIPUR TRIBUNAL. 4.4. HAVING CONSIDERED THE FACTS OF THE MATTER, I A M INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT THAT RE-OPENING WAS BA D-IN-LAW. AS SEEN FROM THE REASONS RECORDED FOR RE-OPENING [RE-PRODUCED AT PAR A-2 OF THE IMPUGNED ORDER] IT WAS STATED THAT DURING THE AUDIT SCRUTIN Y OF THE ASSESSMENT RECORD.. THUS THE REOPENING WAS APPARENTLY ON T HE BASIS OF AUDIT OBJECTION/OBSERVATION. THE FORMATION OF OPINION IN DEPENDENTLY BY THE AO IS LACKING. SIMILARLY, THERE IS NOTHING ON RECORD TO SUGGEST THAT THERE WAS ANY FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE TH E MATERIAL FACTS. THEREFORE, RE-OPENING THE ASSESSMENT BEYOND 4 YEARS FROM THE E ND OF THE ASSESSMENT IS NOT IN ACCORDANCE WITH LAW. AOS OBSERVATIONS AT PARA- 4 OF THE ORDER REGARDING THE VALIDITY OF RE-OPENING THE GENERAL. HAVING GIV EN MY CAREFUL CONSIDERATION TO THE FACTS OF THE CASE AND IN THE LIGHT OF THE CA SE-LAWS RELIED ON BY THE LD.AR. I HOLD THAT RE-OPENING OF THE ASSESSMENT IS BAD-IN- LAW, IMPUGNED ORDER U/S.143(3) R.W.S. 147 IS ANNULLED. THIS GROUND OF APPEAL IS ALLOWED. 6. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE HA VE GONE THROUGH THE RECORD CAREFULLY. THE PROVISO APPENDED TO SECTION 147 OF THE ACT PUTS AN EMBARGO UPON THE POWERS THE ASSESSING OFFICER TO R E-OPEN AN ASSESSMENT, WHERE AN ASSESSMENT U/S.143(3) WAS MADE AND FOUR YE ARS HAVE EXPIRED FROM ITA NO.2392/AHD /2014 ACIT VS. ARVIND LTD. ASST.YEAR 2003-04 - 6 - THE END OF THE RELEVANT ASSESSMENT YEAR. THE ASSES SING OFFICER CANNOT TAKE ANY ACTION UNLESS IT IS ESTABLISHED THAT ASSESSEE F AILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT OR THA T ASSESSMENT YEAR. WE HAVE EXTRACTED THE REASONS RECORDED BY THE ASSESSING OFF ICER. A PERUSAL OF THOSE REASONS WOULD INDICATE THAT DURING AUDIT SCRUTINY O F THE ASSESSMENT RECORD, IT CAME TO NOTICE THAT EXPENDITURE IN FOREIGN CURRENCY SHOWN AT SERIAL NUMBER 27 OF THE NOTES FORMING PART OF ACCOUNTS HAVE BEEN REP ORTED AS INCURRED. THIS WAS THE INFORMATION WHICH WAS AVAILABLE IN THE ORIGINAL SCRUTINY ASSESSMENT. SAME MATERIAL AND FACT HAVE BEEN REAPPRAISED. THERE IS NO ALLEGATION AGAINST THE ASSESSEE THAT IT FAILED TO DISCLOSE ANY MATERIAL FA CT FULLY AND TRULY. LD.FIRST APPELLATE AUTHORITY HAS APPRECIATED THIS FACT IN TH E FINDING EXTRACTED SUPRA. THEREFORE, TAKING INTO CONSIDERATION THE FINDING OF THE LD.CIT(A) ON THIS ISSUE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF THE LD.CIT(A). THIS APPEAL IS DEVOID OF ANY MERIT. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 15 TH FEBRUARY - 2019 AT AHMEDABAD. SD/- SD/- ( AMARJIT SINGH ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 15/ 02 /2019 &.., .(../ T.C. NAIR, SR. PS ITA NO.2392/AHD /2014 ACIT VS. ARVIND LTD. ASST.YEAR 2003-04 - 7 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-VI, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..14.2.2091 (DICTATION-PAD 6- P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..15.2.2019 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.15.2.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 15.2.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER