M/S. BAYER CROPSCIENCE LTD, MUMBAI V. DCIT RG. 10(3), MUMBAI

ITA 2467/MUM/2007

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6224 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-04-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 29-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JI TENDRA YADAV
• Keywords: Business income; Wholly owned subsidiary; Wrong claim; Capital receipt

Judgement Text

ITA NO.: 2467/MUM/07 ASSESSMENT YEAR: 2001-02 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH, MUMBAI [CORAM : PRAMOD KUMAR AM, AND ASHA VIAJAYRAGHVAN JM ] ITA NO.: 2467/MUM/07 ASSESSMENT YEAR: 2001-02 BAYER CROPSCIENCE LIMITED .. APPELLAN T BAYER HOUSE, CENTRAL AVENUE, HIRANANDANI GARDENS POWAI, MUMBAI 400 076 PAN : AAACB965IK VS. DEPUTY COMMISSIONER OF INCOME TAX RANGE 10(3), MUMBAI 400 020 .. RESPONDE NT APPEARANCES: DIVYANG THAKKAR, FOR THE APPELLANT JITENDRA YADAV, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CALLED INTO QUESTION CORRECTNESS OF COMMISSION(APPEALS)S ORDER DATED 9 TH JANUARY 2007, CONFIRMING A PENALTY OF RS 1,43,51,418 IMPOSED ON T HE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2001- 02. 2. LET US FIRST TAKE A LOOK AT THE RELEVANT MATERIA L FACTS. THE ASSESSEE BEFORE US, A SUBSIDIARY OF A GERMAN COMPANY BY THE NAME OF BAYER AG, IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF INSE CTICIDES, FUNGICIDES AND PHARMACEUTICALS ETC. IN THE COURSE OF THIS BUSINESS , THE ASSESSEE WAS ALSO ITA NO.: 2467/MUM/07 ASSESSMENT YEAR: 2001-02 PAGE 2 OF 7 USING OF CERTAIN TRADEMARKS, RELATING TO PHARMACEUT ICAL PRODUCTS, OWNED BY BAYER AG. THIS USE OF BAYER AGS TRADEMARKS BY THE ASSESSEE WAS GOVERNED BY ASSESSEES AGREEMENT DATED 21 ST JUNE 1989 WITH THE BAYER AG. THIS AGREEMENT TO SUCH USE THE TRADEMARKS WAS, HOWEVER, TERMINATED. BAYER AG ENTERED INTO AN AGREEMENT ANOTHER SUBSIDIARY COMPAN Y IN INDIA -A WHOLLY OWNED SUBSIDIARY, I.E. BAYER PHARMACEUTICALS CO. LT D( BPCL, IN SHORT), AND, UNDER THE SAID AGREEMENT, BPCL WAS ALLOWED TO USE T HOSE TRADE MARKS. IN OTHER WORDS, THUS, AS AGAINST USE OF TRADEMARKS BY THE ASSESSEE COMPANY, BPCL WAS TO USE THE THESE TRADEMARKS. THE ASSESSEE, NEVERTHELESS, CONTINUED TO MANUFACTURE THE RELATED PRODUCTS THOUGH UNDER A TOLL MANUFACTURING AGREEMENT FOR BPCL, FOR A PERIOD OF FIVE YEARS, NOW . THE EFFECTIVE CHANGE THUS BROUGHT ABOUT BY THESE DEVELOPMENTS WAS THAT THE RO LE OF THE ASSESSEE, SO FAR AS BUSINESS IN RESPECT OF THESE PHARMACEUTICAL PROD UCTS WAS CONCERNED, WAS REDUCED TO THAT OF A CONTRACT MANUFACTURER AND VEND OR TO BPCL. IT IS IN THE BACKDROP OF THESE DEVELOPMENTS THAT THE ASSESSEE RE CEIVED A SUM OF RS 7 CRORES, AS CONSIDERATION ON TRANSFER OF MARKETING N ETWORK, FROM BLPCL. NONE OF THESE FACTS ARE IN ANY DISPUTE. 3. THE DISPUTE, HOWEVER, AROSE ON THE QUESTION AS T O HOW SHOULD THIS RECEIPT OF CONSIDERATION, ON SALE OF MARKETING NETW ORK, BE TREATED. WHILE THE CASE OF THE ASSESSEE WAS THAT IT IS A CAPITAL RECEI PT IN NATURE, THE STAND TAKEN BY THE ASSESSING OFFICER WAS THAT THE SAID RECEIPT WAS A REVENUE RECEIPT AND AN INTEGRAL PART OF THE INCOME LIABLE TO BE TAXED A S BUSINESS INCOME OF THE ASSESSEE. WHEN THE AFORESAID DISPUTE FINALLY TRAVE LLED IN APPEAL BEFORE A COORDINATE BENCH OF THIS TRIBUNAL, THE COORDINATE B ENCH UPHELD THE STAND OF THE ASSESSING OFFICER AND HELD THE RECEIPT OF RS 7 CRORES TO BE TAXABLE IN THE HANDS OF THE ASSESSEE, AS A REVENUE RECEIPT. THE AD DITION WAS THUS CONFIRMED. 4. THE MATTER, HOWEVER, DID NOT REST WITH THE ADDIT ION OF RS 7 CRORES TO THE INCOME OF THE ASSESSEE. ITA NO.: 2467/MUM/07 ASSESSMENT YEAR: 2001-02 PAGE 3 OF 7 5. THE ASSESSING OFFICER ALSO IMPOSED A PENALTY OF RS 1,43,51,418, UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, ON THE ASS ESSEE. IN HIS BRIEF ORDER, THE ASSESSING OFFICER OBSERVED THAT IT IS APPARENT FROM RECORDS THAT THE ASSESSEE HAS WRONGFULLY CLAIMED DEDUCTION IN SPITE OF CLEAR CUT PROVISIONS IN THIS REGARD AND THUS, THE ASSESSEE COMPANY HAS SO UGHT TO EVADE THE TAXES AND HAS FURNISHED INACCURATE PARTICULARS OF INCOME . RATHER HASTILY, AND WITHOUT ANALYZING THE REASONS OF HIS OBSERVATIONS A NY FURTHER, THE ASSESSING OFFICER CONCLUDED THAT HE, THEREFORE, HOLDS THAT T HE ASSESSEE HAS CONCEALED INCOME AND FURNISHED INACCURATE PARTICULARS, AND, T HEREFORE, (THE ASSESSEE) IS LIABLE FOR LEVY OF PENALTY. FOR THE SAKE OF COMPL ETENESS, WE MAY MENTION THAT THE ASSESSING OFFICER HAD ALSO MADE A DISALLOWANCE UNDER SECTION 14 A OF THE INCOME TAX ACT, BY DENYING ASSESSEES CLAIM OF DEDU CTION IN RESPECT OF CERTAIN EXPENSES, WHICH, ACCORDING TO THE ASSESSING OFFICER , WERE INCURRED FOR EARNING TAX FREE DIVIDEND INCOME. HOWEVER, IT IS NO T REALLY NECESSARY TO GO FURTHER INTO THE FACTS RELATING TO THIS DISALLOWANC E AS THIS ISSUE HAS BEEN, VIDE ORDER PASSED BY A COORDINATE BENCH, HAS BEEN RESTOR ED TO THE FILE OF THE ASSESSING OFFICER, AND THE ADDITION DOES NOT THUS S URVIVE ANY LONGER. THE IMPUGNED PENALTY WAS LEVIED IN RESPECT OF CONSIDERA TION ON SALE OF MARKETING NETWORK BEING TREATED AS REVENUE RECEIPT IN THE COU RSE OF BUSINESS, AND IN RESPECT OF EXPENSES BEING DISALLOWED UNDER SECTION 14 A. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED BY THE ORDER OF THE CIT(A ) EITHER, AND IS THUS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 7. WE FIND THAT A PLAIN READING OF SECTION 271(1)( C) MAKES IT CLEAR THAT SO FAR AS THE SCHEME OF PENALTY FOR CONCEALMENT OF INC OME IS CONCERNED, IT IS SINE QUA NON FOR IMPOSITION OF PENALTY THAT DURING THAT THE ASS ESSING OFFICER SHOULD BE SATISFIED THAT THE ASSESSEE HAS (I) CONCE ALED HIS INCOME, OR (II) ITA NO.: 2467/MUM/07 ASSESSMENT YEAR: 2001-02 PAGE 4 OF 7 FURNISHED INACCURATE PARTICULARS OF INCOME. TO THIS EXTENT, THE ONUS IS ON THE ASSESSING OFFICER TO DEMONSTRATE THAT THE ASSES SEE HAS CONCEALED THE INCOME OR FURNISHED THE INACCURATE PARTICULARS OF I NCOME. IN THE CASE BEFORE US, THE CASE OF THE ASSESSING OFFICER IS THAT THE A SSESSEE HAS FURNISHED INACCURATE PARTICULARS INASMUCH AS HE MADE A WRONG CLAIM. IN OUR CONSIDERED VIEW, JUST BECAUSE AN ASSESSEE HAS MADE A CLAIM WHICH IS INADMISSIBLE IN LAW, IT CANNOT BE INFERRED THAT IT IS A CASE OF FURNISHING INACCURATE PARTICULARS. HONBLE SUPREME COURT, IN THE CASE OF RELIANCE PETROPRODUCTS PVT LTD VS CIT (322 ITR 158), WHICH WAS A CASE IN WHICH THEIR LORDSHIPS WERE ONLY CONCERNED WITH THE QUESTI ON WHETHER IN THIS CASE, AS A MATTER OF FACT, THE ASSESSEE HAS GIVEN I NACCURATE PARTICULARS. THEIR LORDSHIPS NOTED THAT IN THIS CASE, THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND T O BE INCORRECT OR ERRONEOUS OR FALSE AND ADD THAT SUCH BEING THE CA SE, THERE WOULD BE NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1)(C) OF THE ACT AND THAT A MERE MAKING OF THE CLAIM, WHICH IS NOT SUST AINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULAR S REGARDING INCOME OF THE ASSESSEE. 9. THAT, HOWEVER, IS NOT THE END OF THE MATTER. NOT ONLY THAT THE PENALTY PROVISIONS COVER THE SITUATIONS IN WHICH TH E ASSESSEE HAS CONCEALED INCOME OR FURNISHED THE INACCURATE PARTICULARS, IN CERTAIN SITUATION, EVEN WITHOUT THERE BEING ANYTHING TO INDICATE SO, STATUT ORY DEEMING FICTION FOR INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN C ONCEALED. IN ADDITION TO NORMAL CONNOTATIONS OF CONCEALMENT THUS, A DEEMIN G FICTION IS ALSO IMPLICIT IN THE SCHEME OF PENALTY PROVISIONS. THIS DEEMING FICTION, BY WAY OF EXPLANATION 1 TO SECTION 271(1)(C) ENVISAGES TWO SITUATIONS (A) FIRST, WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPU TATION OF TOTAL INCOME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE FAILS TO OFFERS AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR THE CIT(A); AND, (B) SECOND, W HERE IN RESPECT OF ANY ITA NO.: 2467/MUM/07 ASSESSMENT YEAR: 2001-02 PAGE 5 OF 7 FACTS MATERIAL TO THE COMPUTATION OF TOTAL INCOME U NDER THE PROVISIONS OF THIS ACT, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION AND THE ASSESSEE FAILS TO PROVE THAT SUCH EXPLANATION IS BO NAFIDE AND THAT THE ASSESSEE HAD DISCLOSED ALL THE FACTS RELATING TO TH E SAME AND MATERIAL TO THE COMPUTATION OF TOTAL INCOME. IN THE FIRST SITUATIO N, THE DEEMING FICTION IS TRIGGERED BY THE INACTION OF THE ASSESSEE BY HIS NO T GIVING THE EXPLANATION WITH RESPECT TO ANY FACT MATERIAL TO THE COMPUTATIO N OF TOTAL INCOME, OR BY ACTION OF THE ASSESSING OFFICER OR THE CIT(A) BY GI VING CATEGORICAL FINDING TO THE EFFECT THAT THE EXPLANATION GIVEN BY THE ASSES SEE IS FALSE. IN THE SECOND SITUATION, THE DEEMING FICTION IS TRIGGERED BY THE FAILURE OF THE ASSESSEE LEADING TO SATISFACTION OF CONDITIONS LAID DOWN IN CLAUSE B OF EXPLANATION 1 TO SECTION 271(1)(C), NAMELY THAT THE ASSESSEE IS N OT ABLE TO SUBSTANTIATE AN EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME, AND, IN ADDITION TO THIS, THE ASSESSEE IS A LSO NOT ABLE TO PROVE THAT SUCH EXPLANATION WAS GIVEN BONAFIDE AND ALL THE FAC TS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF TOTAL INCOME HAV E BEEN DISCLOSED BY THE ASSESSEE. WHEN THIS DEEMING FICTION COMES INTO PLA Y, THE RELATED ADDITION OR DISALLOWANCE IN COMPUTING THE TOTAL INCOME OF TH E ASSESSEE, FOR THE PURPOSES OF SECTION 271(1)(C), IS DEEMED TO REPRESE NT THE INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAVE BEEN F URNISHED, BUT THAT THE LEVY OF PENALTY HINGES ON ASSESSEES SUBSTANTIATING THE EXPLANATION, PROVING THAT IT IS BONAFIDE AND THAT ALL THE MATERIAL FACTS ARE DISCLOSED. VIEWED IN THIS PERSPECTIVE ALSO, HOWEVER, WE FIND THAT THE AS SESSING OFFICER DOES NOT HAVE A LEGALLY SUSTAINABLE CASE. WE HAVE NOTED THE ASSESSEE HAS A REASONABLE EXPLANATION FOR HAVING MADE THE CLAIM TH AT THE RECEIPT OF RS 7 CRORES ON TRANSFER OF MARKETING NETWORK CONSTITUTED A CAPITAL RECEIPT, AND ALL THE NECESSARY DETAILS ARE FILED BY THE ASSESSEE AND THE CLAIM IS MADE IN A FAIR AND TRANSPARENT MANNER. IT IS NOT A CASE THAT TH E ASSESSEE HAS MADE A CLAIM WHICH IS CLEARLY INADMISSIBLE A CLAIM OR CLEARLY CO NTRARY TO THE PREVAILING LEGAL POSITION. IT IS ALSO INTERESTING TO NOTE THAT THE IMPUGNED PENALTY HAS BEEN IMPOSED ON THE ASSESSEE ON THE GROUND, TO QUOT E THE WORDS OF THE ITA NO.: 2467/MUM/07 ASSESSMENT YEAR: 2001-02 PAGE 6 OF 7 ASSESSING OFFICER, IT IS APPARENT FROM RECORDS THA T THE ASSESSEE HAS WRONGFULLY CLAIMED DEDUCTION IN SPITE OF CLEAR CUT PROVISIONS IN THIS REGARD, BUT THE COORDINATE BENCH, CONFIRMING THE QUANTUM AD DITION IN THE HANDS OF THE ASSESSEE, DOES NOT SEEM TO AGREE WITH THIS APPR OACH OF THE ASSESSING OFFICER. IN SHARP CONTRAST TO ASSESSING OFFICERS P ERCEPTIONS ABOUT CLEAR CUT PROVISIONS HOLDING THAT THE CONSIDERATION ON SALE OF MARKETING NETWORK WAS A REVENUE RECEIPT LIABLE TO BE TAXED, THE COORDINATE BENCH, VIDE ORDER DATED 15 TH SEPTEMBER 2009, OBSERVED THAT THE QUESTION WHETHER A PARTICULAR EXPENDITURE (INCOME) IS IN CAPITAL FIELD OR REVENUE FIELD HAS BEEN A VEX ED QUESTION AND MANY A TIMES POSES A LOT OF DIFFICULTY IN DECIDING THE ISSUE. LEARNED COORDINATE BENCH THEN REFERRED TO THE OBSER VATIONS MADE HONBLE SUPREME COURT, IN THE CASE OF KARAM CHAND THAPAR & BROTHERS LTD (80 ITR 167), TO THE EFFECT THAT, IN THE DETERMINATION OF THE QUESTION WHETHER A RECEIPT IS CAPITAL OR INCOME, IT IS NOT POSSIBLE TO LAY DOWN ANY SINGLE TEST AS INFALLIBLE OR ANY SINGLE CRITERION AS DECISIVE AND THAT THE QUESTION MUST ULTIMATELY DEPEND ON THE FACTS OF A PARTICULAR CASE , AND THE AUTHORITIES BEARING ON THE QUESTION ARE VALUABLE ONLY AS INDICA TING THE MATTERS THAT HAVE TO BE TAKEN INTO ACCOUNT IN REACHING A DECISION. I T WAS THEN OBSERVED THAT THE ANSWER (TO THE QUESTION WHETHER IT IS REVENUE OR CAPITAL R ECEIPT) ALWAYS DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE . IN VIEW OF THESE OBSERVATIONS OF THE COORDINATE BENCH, WITH WHICH WE ARE IN MOST RESPECTFUL AGREEMENT, THE ASSESSING OFFICER IS QUITE IN ERROR IN ASSUMING, AS IT SEEMS HE DID, THAT IT WAS AN OPEN AND SHUT SITUATION, TO HOL D THAT THE CLAIM OF THE ASSESSEE WAS AN INADMISSIBLE CLAIM. THE EXPLANATIO N OF THE ASSESSEE TO THE EFFECT THAT THE ASSESSEE MADE THIS CLAIM BONAFID E, CANNOT THUS BE SIMPLY BRUSHED ASIDE- AS HAS BEEN DONE BY THE AUTHORITIES BELOW. QUITE TO THE CONTRARY, WE ARE SATISFIED THAT IT IS A BONAFIDE , EVEN IF, AS HELD BY THE COORDINATE BENCH, AN ERRONEOUS CLAIM. WE HAVE ALSO NOTED THAT THE CONDUCT OF THE ASSESSEE CANNOT BE SAID TO BE LACKING BONAFI DES IN ANY MANNER, AND THAT THE ASSESSEE HAD ALSO MADE THE CLAIM IN A FAIR AND TRANSPARENT MANNER, WITHOUT WITHHOLDING ANY MATERIAL INFORMATION . WE ARE SATISFIED THAT THE ITA NO.: 2467/MUM/07 ASSESSMENT YEAR: 2001-02 PAGE 7 OF 7 EXPLANATION OF THE ASSESSEE FOR HAVING MADE THE CLA IM IS REASONABLE AND WORTH BEING ACCEPTED. IN OUR CONSIDERED VIEW, THERE FORE, IT WAS NOT EVEN A FIT CASE IN WHICH PENALTY UNDER SECTION 271(1)(C) C OULD HAVE BEEN IMPOSED FOR FURNISHING OF INACCURATE PARTICULARS OR ON ACCO UNT OF INFERENCE BEING DRAWN TO THAT EFFECT UNDER EXPLANATION TO SECTION 2 71(1)(C). 10. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEAR ING IN MIND, WE ARE OF THE CONSIDERED VIEW THAT IT IS A FIT CASE FOR DE LETING THE IMPUGNED PENALTY OF RS 1,43,51,418, IMPOSED ON THE ASSESSEE UNDER S ECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. WE, THEREFORE, DELETE THE SAM E. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 11. IN THE RESULT, APPEAL IS ALLOWED. PRONOUNCED I N THE OPEN COURT TODAY ON 30TH DAY OF NOVEMBER, 2010. SD/- SD/- (ASHA VIJAYRAGHAVAN) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; 30 TH DAY OF NOVEMBER_ , 2010 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER - , MUMBAI 4. COMMISSIONER (APPEALS) - , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, D BENCH, MUMBAI 6. GUARD FILE TRUE COPY BY O RDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI