TOWERS WATSON INDIA PVT. LTD., MUMBAI V. D.C.I.T. RG. 8(3), MUMBAI

ITA 26/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2012 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 19-07-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 02-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA ITA NO MUM; ITA NO MUM
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Reopening of assessment; Depreciation; Tangible material; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 115JB; 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL G, BENCH MUM BAI , , , BEFORE SHRI RAJENDRA, AM AND SHRI RAM LAL NEGI, JM ./ ITA NO.26/MUM/2012 ( / ASSESSMENT YEAR: 2004-05) TOWER WATSON INDIA PVT. LTD. (FORMERLY WATSON WYATT INDIA PVT. LTD.) SOLITAIRE CORPORATE PARK, BLDG. NO. 5, 1 ST FLOOR, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI- 400 093. VS. THE DY. CIT RANGE 8(3), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020. ./ ./ PAN/GIR NO. : AAACG2955K ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) & ./ ITA NO.4523/MUM/2013 ( / ASSESSMENT YEAR: 2007-08) TOWER WATSON INDIA PVT. LTD. (FORMERLY WATSON WYATT INDIA PVT. LTD.) SOLITAIRE CORPORATE PARK, BLDG. NO. 5, 1 ST FLOOR, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI- 400 093. VS. THE DY. CIT RANGE 8(3), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020. ./ ./ PAN/GIR NO. : AAACG2955K ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) $%& /ASSESSEE BY : SHRI. M.SUBRAMANIAN /REVENUE BY : SHRI. O.P.MEENA 2 ITA NO 26/MUM/2012 & ITA NO. 4523/MUM/2013 ASSESSMENT YEAR: 2004-05 & 2007-08 ' ( ) &* / DATE OF HEARING : 17/08/2016 +,-. ) &* / DATE OF PRONOUNCEMENT 16/11/2016 '# / O R D E R PER RAM LAL NEGI, JM THESE TWO APPEALS HAVE BEEN PREFERRED BY THE A SSESSEE AGAINST ORDER DATED 31/10/2011 AND 17/04/2013 PASSED BY THE LD. CIT(A)- 18 MUMBAI, PERTAINING TO THE ASST. YEARS 2004-05 & 2007-08 RESPECTIVELY, WHEREBY THE LD. CIT(A) DISMISSED THE APPEALS FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDERS. SINCE BOTH THE APPEALS PERTAIN TO THE SAME ASSESSEE AND T HE ISSUES INVOLVED ARE COMMON, THE SAME WERE CLUBBED AND HEARD TOGETHER AN D ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 26/M/2012 A.Y. 2004-05 2. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT C OMPANY ENGAGED IN THE BUSINESS OF CONSULTANCY SERVICES IN HUMAN RESOURCES DEVELOPMENT, FILED ITS RETURN OF INCOME FOR THE RELEVANT A.Y. DECLARING A LOSS OF RS. 2,09,45,426/-AFTER CLAIMING DEDUCTION OF RS. 1,28,86,816/-AS UNREALIZE D FOREIGN EXCHANGE GAIN. THE CASE WAS SCRUTINIZED U/S 143(3) OF THE INCOME T AX ACT, 1961 (IN SHORT THE ACT), ASSESSING THE LOSS OF RS 1,73,55,454/-. THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY AGAINST THE SA ID ORDER WHICH WAS PARTLY ALLOWED. THE DEPARTMENT FILED APPEAL AGAINST THE OR DER PASSED BY THE FIRST APPELLATE AUTHORITY ON THE ISSUE OF DISALLOWANCE OF BAD DEBTS OF RS. 8,62,631/- U/S 36(1)(VII), HOWEVER, THE DEPARTMENTS APPEAL W AS DISMISSED BY THE ITAT VIDE ITS ORDER DATED 22/06/2009. THE ASSESSMENT WA S THEREAFTER REOPENED AFTER RECORDING THE FOLLOWING REASONS:- 3 ITA NO 26/MUM/2012 & ITA NO. 4523/MUM/2013 ASSESSMENT YEAR: 2004-05 & 2007-08 ON VERIFICATION OF CASE RECORDS, IT WAS OBSERVED T HAT THE ASSESSEE HAS ACCOUNTED GAIN OF RS. 1,28,86,816/- ON ACCOUNT OF F OREIGN EXCHANGE FLUCTUATION. HOWEVER IN THE COMPUTATION THE SAME HA S BEEN CLAIMED AS DEDUCTION AS THE SAME WAS NOT REALIZED. SINCE GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS ACCOUNTED IN THE BOOKS FOLL OWING ACCEPTED ACCOUNTING PRINCIPLES ON ACCRUAL BASIS, THE SAME IS TAXABLE AS REVENUE INCOME. IT HAS BEEN STATED THAT GAINS OR LOSSES ARI SING OUT OF FLUCTUATION IN FOREIGN EXCHANGE IS ACCOUNTED FOR ON ACTUAL PAYMENT /REALIZATION. ALSO FOREIGN EXCHANGE GAIN HAS BEEN REDUCED FROM LOAN LI ABILITY. PROVISION OF SECTION 43A IS ALSO NOT APPLICABLE IN THIS CASE AS THE GAIN/LOSS IS ON PURCHASE OF DEPRECIATION ASSETS. THE IRREGULAR ALLO WANCE OF DEDUCTION TOWARDS UNREALIZED FOREIGN EXCHANGE GAIN RESULTED I N UNDER ASSESSMENT OF INCOME. 3. ACCORDINGLY, NOTICE U/S 148 OF THE ACT WAS ISSUE D AND THE ASSESSEE WAS ASKED TO FILE RETURN OF INCOME WITHIN 31 DAYS OF TH E RECEIPT OF THE NOTICE. HOWEVER, NO RETURN WAS FILED IN RESPONSE TO SAID NO TICE. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS, COPY OF REASONS FOR REOP ENING ITS CASE FOR ASSESSMENT YEAR 2004-05 WAS PROVIDED TO THE ASSESSE E COMPANY WHEREUPON THE COMPANY FURNISHED ITS EXPLANATION. AFTER TAKING INTO CONSIDERATION THE EXPLANATION OF THE ASSESSEE, THE A.O RELYING ON THE VARIOUS JUDGMENTS OF THE HONBLE SUPREME COURT AND HIGH COURTS MADE ADDITION OF FOREIGN EXCHANGE GAIN TO THE TUNE OF RS. 1,28,86,816/- TO THE INCOME OF THE ASSESSEE COMPANY AND DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. (-) 53,31,269/-. 4. THE ASSESSEE FILED APPEAL AGAINST THE RE-ASSESSM ENT ORDER BEFORE THE LD. CIT(A), WHO AFTER HEARING THE ASSESSEE DISMISSED TH E APPEAL AND CONFIRMED THE FINDINGS OF THE A.O. THE ASSESSEE HAS FILED THE PRE SENT APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THE FOLL OWING EFFECTIVE GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-18 HAS ERRED IN NOT ALLOWING OUR APPEAL FOR WRONGLY REOPENING TH E ASSESSMENT PROCEEDINGS U/S 147 OF IT ACT, 1961 BY THE ASSESSIN G OFFICER. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -18, MUMBAI HAS ERRED AND HAS FAILED TO CONSIDER OUR SUBMISSION S. THE 4 ITA NO 26/MUM/2012 & ITA NO. 4523/MUM/2013 ASSESSMENT YEAR: 2004-05 & 2007-08 UNREALIZED FOREIGN EXCHANGE GAIN OF RS. 1,28,83,816 /- HAS BEEN WRONGLY ADDED TO THE INCOME FOR THE FINANCIAL YEAR 2003-04 (ASST. YEAR 2004-05). 5. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT REOPENING OF PRESENT CASE IS BAD IN LAW AS THE ORIGINAL ASSESSME NT WAS COMPLETED AFTER EXAMINING THE ISSUE REGARDING UNREALIZED FOREIGN EX CHANGE GAIN. SPECIFIC QUERY IN THIS REGARD WAS RAISED DURING THE ASSESSMENT PRO CEEDINGS AND REPLY THERETO WAS SUBMITTED ACCORDINGLY. RELYING ON THE RATIO LAI D DOWN BY THE HONBLE DELHI HIGH COURT IN KELVINATOR OF INDIA LTD., 256 ITR 1 (DEL) THE LD. COUNSEL SUBMITTED THAT REASSESSMENT PROCEEDINGS CANNOT BE I NITIATED ON A MERE CHANGE OF OPINION, COMPLETED ASSESSMENT CAN BE REOPENED ON LY WHEN THERE IS A TANGIBLE MATERIAL AVAILABLE WITH THE AO TO FORM A B ELIEF THAT TAXABLE INCOME HAS ESCAPED ASSESSMENT AND THAT THE REASONS RECORDED IN THIS CASE DO NOT INDICATE APPLICATION OF MIND AND REASON TO BELIEVE THAT INCO ME ESCAPING ASSESSMENT WHICH ARE THE BASIC ELEMENTS REQUIRED FOR REOPENING OF ASSESSMENT ORDER. THE LD. COUNSEL FURTHER SUBMITTED THAT UNUTILIZED FOREI GN GAIN/LOSS IS BASICALLY A NOTIONAL GAIN/LOSS ON REVALUATION OF FOREIGN LOAN T AKEN, FOREIGN DEBTORS AND CREDITORS ON THE DATE OF BALANCE SHEET. THE INDIVID UAL FOREIGN LOANS, FOREIGN DEBTORS AND CREDITORS ARE NOT AFFECTED BY THIS NOTI ONAL GAIN/LOSS. THE ASSESSEE COMPANY HAS BEEN FOLLOWING A CONSISTENT METHOD IN A LL THE ASSESSMENT YEARS. IN AY 2001-02, AY 2002-03 AND AY 2005-06, WHEN THER E WAS AN UNREALIZED FOREIGN EXCHANGE LOSS, THE COMPANY DID NOT TREAT TH E SAME AS EXPENSE. ACCORDINGLY, IN THE AYS 2003-04 AND 2004-05, WHEN T HERE WAS AN UNREALIZED FOREIGN EXCHANGE GAIN, THE COMPANY DID NOT CONSIDER THE SAME AS INCOME. SINCE THE LOSS HAS NOT BEEN CONSIDERED AS EXPENSE, THE GAIN CANNOT BE CONSIDERED AS INCOME. THE LOSS OR GAIN IS NOTIONAL AND NOT REAL THEREFORE, THE SAME COULD NOT BE ADDED TO THE INCOME OF THE ASSESS EE. 5 ITA NO 26/MUM/2012 & ITA NO. 4523/MUM/2013 ASSESSMENT YEAR: 2004-05 & 2007-08 6. ON THE OTHER HAND THE LD. DR RELYING ON THE FIND INGS OF THE LD. CIT(A) SUBMITTED THAT PRINCIPAL OF ESTOPPEL IS NOT APPLICA BLE TO THE PROCEEDINGS UNDER INCOME TAX ACT AND THE A.O HAS RIGHTLY REOPENED TH E ASSESSMENT. SINCE THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO IN AC CORDANCE WITH THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. WOODWARD GOVERNOR INDIA PVT. (2009) 312 ITR 254 (SC) , THE ORDER UNDER CHALLENGE IS NEITHER ILLEGAL NO R BEYOND JURISDICTION. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE DOCUMENTS ON RECORD INCLUDING THE CASES RELIED UPON BY THE PARTI ES IN SUPPORT OF THEIR RESPECTIVE CONTENTIONS. WE NOTICE THAT DURING THE O RIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT., THE A.O ASKED T HE ASSESSEE TO FURNISH DETAILS REGARDING FOREIGN EXCHANGE LOSS VIDE LETTER DATED 28 TH JULY 2006 (PARA 21 ITEM 14). IN RESPONSE THEREOF THE ASSESSEE FURNI SHED THE DETAILS OF UNREALIZED FOREIGN EXCHANGE GAIN (UNREALIZED) FOR T HE A.Y. 2004-05 AS ANNEXURE 14 TO LETTER DATED 25.9.2006. WE FURTHER NOTICE THA T THE ASSESSEE COMPANY HAS BEEN FOLLOWING A CONSISTENT METHOD. IN AYS 2001-02, 2002-03 AND 2005-06 WHEN THERE WAS AN UNREALIZED FOREIGN EXCHANGE LOSS, THE COMPANY DID NOT CONSIDER THE SAME AS EXPENSE AND IN THE AYS 2003-04 AND 2004-05 WHEN THERE WAS AN UNREALIZED FOREIGN EXCHANGE GAIN THE COMPANY DID NOT TREAT THE SAME AS INCOME. THE FOREIGN EXCHANGE LOSS FOR THE AYS 2001- 02,2002-03 AND 2005-06 WERE DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF INCOME AND THE SAME WERE REVERSED ON THE FIRST DAY OF NEXT FINANCIAL YE AR. SIMILARLY, THERE WAS UNREALIZED FOREIGN EXCHANGE GAIN FOR THE AY 2003-04 WHICH WAS NOT CONSIDERED AS INCOME IN THE COMPUTATION OF INCOME. THE ISSUE R EGARDING FOREIGN EXCHANGE GAIN/LOSS WAS NOT RAISED BY THE AO IN ALL THESE YEA RS AND THE ASSESSMENT ORDERS WERE PASSED U/S 143(3) OF THE ACT. 8. FROM THE CONTENTS OF REASONS FOR REOPENING OF AS SESSMENT ORDER IT CAN BE INFERRED THAT THE A.O HAS CHANGED HIS OPINION AFTER PASSING ORIGINAL 6 ITA NO 26/MUM/2012 & ITA NO. 4523/MUM/2013 ASSESSMENT YEAR: 2004-05 & 2007-08 ASSESSMENT ORDER. AS PER THE PROVISIONS OF THE ACT, THE AO CAN REASSESS THE INCOME WHICH HAS ESCAPED ASSESSMENT TO RE-COMPUTE T HE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE IF HE HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR SUBJECT TO THE PROVISIONS OF SECTION 148 TO 153 OF THE ACT. IN THE LIGHT OF THE AFORESAID PROVISIONS IT CAN BE SAID THAT DISCOVERY OF NEW AND IMPORTANT MATTER OR KNOWLEDGE OF FRESH FACTS WHICH WERE NOT AVAILABL E AT THE TIME OF ORIGINAL ASSESSMENT WOULD CONSTITUTE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED. BUT IN THE PRESENT CASE SINCE NO N EW MATERIAL HAS COME ON RECORD OR NO NEW INFORMATION HAS BEEN RECEIVED. SO, THE ACTION OF THE AO IS NOT BASED ON REASON TO BELIEVE WITHIN THE MEANING OF SECTION 147 OF THE ACT. THEREFORE, IT AMOUNTS TO MERE FRESH APPLICATION OF MIND TO THE SAME SET OF FACTS OR MERE CHANGE OF OPINION WHICH DOES NOT PROVIDE JU RISDICTION TO THE AO TO INITIATE PROCEEDINGS UNDER SECTION 147 OF THE ACT. 9. IN M.J. PHARMACEUTICALS LTD. VS DCIT (2008) 297 ITR 11 9 THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT WHEN THE QU ESTION AS TO WHETHER FOR DETERMINING TOTAL INCOME UNDER SECTION 115JB OF THE ACT, THE BOOK PROFIT HAS TO BE INCREASED BY THE AMOUNT OF PROVISION FOR DEFERRE D TAXATION MADE BY THE ASSESSEE IN P&L ACCOUNT, WAS SPECIFICALLY RAISED BY THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS AND THE AO PASSED THE ASSESS MENT ORDER ACCEPTING THE EXPLANATION GIVEN BY THE ASSESSEE, THE SAID ASSESSM ENT CANNOT BE REOPENED FOR CONSIDERING THE VERY SAME ISSUE UNLESS THE AO HAS S OME MATERIAL TO FORM THE OPINION THAT INCOME CHARGEABLE TO TAX HAS ESCAPED A SSESSMENT. IN KELVINATOR OF INDIA LTD., 256 ITR 1 (DEL) THE HONBLE DELHI HIGH COURT HAS HELD THAT REASSESSMENT PROCEEDINGS CANNOT BE INITIATED ON A M ERE CHANGE OF OPINION AND COMPLETED ASSESSMENT CAN BE REOPENED ONLY WHEN THER E IS A TANGIBLE MATERIAL AVAILABLE WITH THE AO TO FORM A BELIEF THAT TAXABLE INCOME HAS ESCAPED ASSESSMENT. IN THE PRESENT CASE, SINCE THE AO HAS P ASSED THE ASSESSMENT ORDER TAKING INTO CONSIDERATION THE EXPLANATION OF THE ASSESSEE REGARDING 7 ITA NO 26/MUM/2012 & ITA NO. 4523/MUM/2013 ASSESSMENT YEAR: 2004-05 & 2007-08 UNREALIZED FOREIGN EXCHANGE GAIN IN QUESTION, IT CA N BE CONCLUDED THAT REOPENING IS NOT BASED ON THE REASON TO BELIEVE WIT HIN THE MEANING OF SECTION 147 OF THE ACT. IN VIEW OF THE RATIO LAID DOWN BY T HE HONBLE SUPREME COURT AND HIGH COURT DISCUSSED, WE ARE OF THE CONSIDERED OPIN ION THE ACTION OF AO IS ILLEGAL AND NOT SUSTAINABLE UNDER LAW. HENCE, THE S AME IS DECLARED VOID. SINCE THE ASSESSMENT ORDER ITSELF IS NOT SUSTAINABLE IN L AW, THE QUESTION OF CONFIRMATION OF THE SAID ORDER BY THE LD. CIT(A) DO ES NOT ARISE. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. CIT( A) AND ALLOW THE FIRST GROUND OF APPEAL OF THE ASSESSEE. SINCE, WE HAVE AL LOWED THE FIRST GROUND OF THE APPEAL, WE DO NOT CONSIDER IT NECESSARY TO DECIDE G ROUND NO 2 OF THE APPEAL ON MERITS. ITA NO. 4523/M/2013 A.Y. 2007-08 THE FACTS OF THE CASE AND THE ISSUES INVOLVED IN TH E PRESENT CASE ARE IDENTICAL TO THE CASE OF THE ASSESSEE FOR THE ASSES SMENT YEAR 2004-05 AFORESAID (EXCEPT THE AMOUNT INVOLVED) AND SINCE WE HAVE DECI DED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE, WE ALSO ALLOW THE PRESENT A PPEAL OF THE ASSESSEE ON THE SAME REASONING. IN THE RESULT, THE ASSESSEES APPEAL FOR THE ASSESS MENT YEAR 2004-05 AND 2007-08 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2016 SD/- SD/- ( RAJENDRA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER ' /( MUMBAI; 0 DATED:16/11/2016 8 ITA NO 26/MUM/2012 & ITA NO. 4523/MUM/2013 ASSESSMENT YEAR: 2004-05 & 2007-08 '#$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. ' 2& ( ) / THE CIT(A)- 4. ' 2& / CIT 5. 56 '&7$ , * 7$. , ' /( / DR, ITAT, MUMBAI 6. 8 9( / GUARD FILE. '# / BY ORDER, #5& '& //TRUE COPY// )* + (DY./ASSTT. REGISTRAR) , ' /( / ITAT, MUMBAI PRAMILA