Adidas India Marketing P. Ltd., New Delhi V. ITO, Meerut

ITA 2889/DEL/2010

• Counselvise Citation: 288920114 RSA 2010
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K GUPTA CIT INTT
• Assessee Lawyers: R K RAGHVAN S
• Keywords: Depreciation; Non passing of speaking order; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.2889 /DEL/2010 ASSESSMENT YEAR : 2006-07 ADIDAS INDIA MARKETING ITO, PVT. LTD. C-2, ANSAL VILLA, WARD-1 (2), SATBARI CHATTRAPUR, N. DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACA AAACA AAACA AAACA- -- -5313 5313 5313 5313- -- -P PP P APPELLANT BY : SHRI K. SAMPATH, & SHRI R.K. RAGHVAN, ADVOCATES. RESPONDENT BY : SHRI D.K. GUPTA, CIT, INTT. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER U/S 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS TAKEN NUMBER OF GROUNDS RELATING TO VARIOUS A DDITIONS MADE BY THE ASSESSING OFFICER. THE ADDITIONS MADE BY TH E ASSESSING OFFICER CONSIST OF TP MATTERS AND NON TP MATTERS. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF SOURCING, DISTRIBUTION AND M ARKETING OF A RANGE OF ADIDAS BRANDED ATHLETIC AND LIFE STYLE PRODU CTS. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 29.11.206 AT NIL INCOME WHEREIN THE PROFITS PRIOR TO ADJUSTMENT OF BROUGHT FORWARD LO SSES WERE DECLARED ITA NO../DEL/ 2 AT ` .2,56,12,914/-. THE ASSESSEE THEN FILED REVISED RETURN O N 21.11.2008 AT NIL INCOME WHEREIN THE PROFITS PRIOR T O ADJUSTMENT OF BROUGHT FORWARD LOSSES WERE DECLARED ` .4,18,18,258/-. THE ASSESSMENT IN THE CASE OF THE ASSESSEE WAS FINALIZED AFTER MAKING VA RIOUS ADDITIONS DESPITE OF THE FACT THAT ASSESSEE HAD FILED VA RIOUS OBJECTIONS BEFORE DISPUTES RESOLUTION PANEL (DRP) AGAINST THE DRA FT ASSESSMENT ORDER. THE DRP HAS DISPOSED OFF THE DRAFT ASSESSMENT ORDE R AND DEALT WITH THE OBJECTIONS FILED BY THE ASSESSEE AND UPHELD TH E PROPOSED ADDITIONS MADE BY THE ASSESSING OFFICER WITHOUT DISCUSSING ANY OF THE OBJECTIONS FILED BY THE ASSESSEE. THE RELEVANT PART OF DRP ORDER IS REPRODUCED BELOW:- A. GROUND NO.1.1. HAS BEEN HEARD. THE AR SHOWED THE REFERENCE MADE BY THE ASSESSING OFFICER TO THE TPO. THE ASSESSEES OBJECTIONS TO MAKING THE ADJUSTMENTS ON AMP EXPENDITURE IS NOTED. HOWEVER, IT IS FOUND THAT THE ASSESSING OFFICER HAS REFERRED THE WHOLE OF TP REPORT TO TPO. THE OMISSION ON PART OF THE ASSESSEE TO REPORT ANY INTERNATIONAL TRA NSACTIONS BY THE COMPANY WHICH HAS BEARING ON THE PROFITS OF TH E COMPANY IS NECESSARILY TO BE CONSIDERED AS POINTS OF REFERENCE BY THE ASSESSING OFFICER TO TPO, THE ARMS LENGTH NATURE OF WHIC H TPO HAS TO DETERMINE IN TERMS OF SECTION 92B(1) READ WITH SECTION 92F(V) OF THE INCOME TAX ACT, 1961 . HENCE NO INTER FERENCE IS CALLED FOR. SEE PARA D RELATING TO GROUND NO.4. IN VIEW OF ALLO WANCE OF GROUND NO.4 AND JUDGMENT OF P&H HIGH COURT IN THE C ASE OF COCA COLA INDIA INC. V. ACIT REPORTED AT (2009) 30-9 ITR 194 WE DO NOT FIND ANY INFIRMITY IN REFERENCE OF ASSESSING OFFICER TO TPO. ITA NO../DEL/ 3 B. GROUND NO.1.1.; HAS (A) TO (I) SUB CLAUSES. THE SUM A ND SUBSTANCE OF THE GROUND IS THE ADJUSTMENTS MADE BY TPO OF ` .8,28,10,848/-. THE ORDER OF TPO WAS DISCUSSED., THE AR HAS TAKEN US THROUGH THE SUBMISSIONS MADE BEFORE TPO ON 2.9. 2009 AND 12.10.2009. WE HAVE PERUSED THE ORDER OF TPO IN WHICH THE OBJECTIONS RAISED BY THE AR DURING THE TPOS PROCEEDIN GS HAS BEEN DEALT WITH. THE AR BEFORE US HAS REITERATED THE ARGUMENTS ADDUCED BEFORE TPO AND HAS OBJECTED TO THE COMPUTATI ON OF ARMS LENGTH. ON DETAILED EXAMINATION OF THE TPOS ORD ER WE DO NOT FIND ANY INFIRMITY. C. GROUND NO.3 RELATES TO THE ADJUSTMENTS OF ` .10,48,537/-. THE ORDER OF TPO HAS BEEN SEEN BY US. THE ARGUMENTS HAVE B EEN HEARD. WE DO NOT FIND ANY INFIRMITY. D. GROUND NO.4.1.1. IS RELATED TO DISALLOWANCE OF PAR T OF ADVERTISEMENT, MARKETING AND PROMOTION EXPENDITURE ( AMP) EXPENDITURE. IN VIEW OF THE ORDER OF DELHI HIGH COU RT IN I.T.A. NO. 265 OF 2008 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997- 98, THE ADDITIONS FOUND TO BE UNTENABLE. E. THE TP ORDER IN ASSESSEES CASE FOR ASSESSMENT YEAR 2006-0 7 IS BASED ON CHAPTER-X OF THE ACT WHICH HAS BEEN INTROD UCED W.E.F. 1.4.2002 AND IS A COMPLETE CODE IN ITSELF. OTH ER ARGUMENTS OF THE AR ABOUT COMPARABILITY AND REPAYMENT OF ROYA LTY IN THIS YEAR HAS ALSO BEEN CONSIDERED BY US. F. GROUND NO.5.1. RELATES TO ADDITION OF ` .11,43,200/-. THE ASSESSING OFFICER HAS MADE THE ADDITION ON INTEREST FREE LOANS ITA NO../DEL/ 4 AMOUNTING TO ` .1,92,49,000/-. THE DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE ON ADVANCE MADE IS CORRECT. G. GROUND NO.6.1. RELATES TO ALLOWING OF DEPRECIATIO N @ 15% ON PERIPHERALS. THIS GROUND OF OBJECTION IS NOT FOUND TEN ABLE. GROUND NO. 7.1 RELATES OF RS.5,67,576/- DURING THE COURSE OF PROCEEDINGS THE LETTER FILED BY CITI BANK HAS BEEN EXAMINED. TH E PAYMENT HAS BEEN MADE NOT BY THE COMPANY. THE CITI BANK HAS CONF IRMED THAT THERE WAS ERRONEOUS UPDATION OF PAN IN THEIR AIR REPO RTING FOR F.Y. 2005-06. THIS ADDITION MERITS DELETION. 1. GROUND NO.8.1. RELATES TO ADDITION OF ` .14,17,355/-. THE ASSESSING OFFICER HAS GIVEN DETAILED CASE LAWS IN NOT ALLO WING THE CLAIM OF ASSESSEE. HENCE NO INTERFERENCE IS CALLED FOR. 2. GROUND NO.9.1 RELATES TO DISALLOWANCE OF CLAIM OF ` .71,88,979/-. THE AR HAS NOT BROUGHT ANY FRESH FACTS. HENCE NO INTE RFERENCE IS WARRANTED. 3. DISSATISFIED WITH THE ORDER U/S 143(3) READ WITH SECT ION 144C OF THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. 4. AT THE OUTSET, THE LD AR SUBMITTED THAT THE DRP H AS NOT CONSIDERED ALL OBJECTIONS AND HAS PASSED ORDER WHICH IS A NON SPEAKING ORDER. IN THIS RESPECT HE TOOK US TO BRIEF SYNOPSIS FILE D BY HIM AND INVITED OUR ATTENTION WHERE THE LD AR HAD DEALT WIT H GROUND NO.1 TO 8 OF THE APPEAL. HE ARGUED THAT GROUND NO.2.1. AND GR OUND NO.2.2. WERE NOT DISCUSSED AT ALL BY DRP AND FURTHER IN RESPECT OF G ROUND NO. 3 TO 3.12 AND GROUND NO.3 & 10, THE DRP HAS NOT APPLIED I TS MIND TOWARDS TWO PAPER BOOKS FILED BEFORE IT. REGARDING GROUND NO I.5, IT WAS BROUGHT TO OUR NOTICE THAT THIS GROUND WAS COVERED BY THE ITA T IN APPELLANTS ITA NO../DEL/ 5 OWN CASE FOR ASSESSMENT YEAR 2004-05 AND WITH REGARD TO GROUND NO.6, IT WAS POINTED OUT THAT MATER RELATED TO DEPRE CIATION ON COMPUTER PERIPHERALS WAS COVERED IN FAVOUR OF THE ASSES SEE BY THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF C IT V. BSES YAMUNA POWER LTD. IN VIEW OF THE ABOVE, THE LD AR ARGUED T HAT THE MATTER MAY BE REMANDED BACK TO DRP FORT FRESH ADJUDICATION AFTE R GOING THROUGH THE OBJECTIONS FILED BY THE ASSESSEE. 5. ON THE OTHER HAND, THE LD AR RELIED UPON THE ORD ER OF THE ASSESSING OFFICER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ASSESSEE HAD FILED TWO VOLUMINOUS PAPER BOOKS BEFORE DRP WHICH WERE NOT DISCUSSED BY THE DRP. THE DRP HAS NOT CONSIDERED ANY OF THE OBJECTIONS AND HAS PASSED THE ORDER WHICH IS NOT A SPEAKI NG ORDER. AS REGARDS GROUND NO.2.1 TO 2.2. THE OBJECTION OF THE A SSESSEE THAT ONLY MATTERS REFERRED TO IN FORM NO.3CEB CAN BE DEALT BY TPO WAS NOT DISCUSSED AND SIMILARLY THE DEC ISION OF ITAT IN THE CASE OF INFOTECH LTD. V. DCIT & AMADEBUS INDIA PVT. LTD. V. ACIT WERE NOT CONSIDERED AND WERE NOT DISCUSSED. SIMILARLY, WE OBSERVE THAT DEPRECIATION ON COMPUTER PERIPHERALS IS DIRECTLY COVE RED BY THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. BSES YAMUNA POWER LTD. BUT ASSESSING OFFICER DID NOT DISCUSS I T. THEREFORE, FROM THE PERUSAL OF DRPS ORDER IT NOWHERE SUGGEST THAT LD DRP HAS CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, NATU RE OF DISPUTE AND DEFENCE OF THE ASSESSEE. THE ORDER IS RUNNING INTO FEW PAGES AND DOES NOT DISCLOSE THE MIND APPLIED BY THE LD ADJUDICAT ORS. THUS, IT CAN SAFELY BE SAID THAT IT IS TOTALLY A NON SPEAKING ORDER. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ROAD MASTE R INDUSTRIES OF ITA NO../DEL/ 6 INDIA V. INSPECTING ASSISTANT COMMISSIONER OF INCOME-TAX REPORTED IN 303 ITR 138 HAS CONSIDERED THE NECESSITY OF ASSIGNING REA SON IN SUPPORT OF AN ORDER ADJUDICATING THE CONTROVERSY BETW EEN THE PARTIES. THE HON'BLE COURT HAS MADE REFERENCE TO A LARGE NUMB ER OF DECISIONS OF HON'BLE SUPREME COURT AS WELL AS HON'BLE HIGH COUR TS IN ORDER TO DEMONSTRATE THAT IN THE PAST HON'BLE SUPREME COURT H AS EMPHASIZED TIME AND AGAIN THAT ADJUDICATING AUTHORITY SHOULD GI VE REASON FOR DISPOSING OFF THE RIGHTS OF THE PARTIES. FOR THE SAKE OF FACILITY OF REFERENCE WE TAKE NOTE OF THE FOLLOWING FINDINGS FRO M THE HIGH COURTS ORDER:- IN TRAVANCORE RAYONS LTD. V. UNION OF INDIA, AIR 19 71 SC 862, THE HON'BLE SUPREME COURT OBSERVED (PAGE 866) : THE COURT INSISTS UPON DISCLOSURE OF REASONS IN SUPPORT O F THE ORDER ON TWO GROUNDS : ONE, THAT THE PARTY AGGRI EVED IN A PROCEEDING BEFORE THE HIGH COURT OR THIS COURT HAS TH E OPPORTUNITY TO DEMONSTRATE THAT THE REASONS WHICH PERSU ADED THE AUTHORITY TO REJECT HIS CASE WERE ERRONEOUS : THE OTHER, THAT THE OBLIGATION TO RECORD REASONS OPERATES AS A DETERREN T AGAINST POSSIBLE ARBITRARY ACTION BY THE EXECUTIVE AUTHORITY INVESTED WITH THE JUDICIAL POWER. IN MAHABIR PRASAD SANTOSH KUMAR V. STATE OF U. P., A IR 1970 SC 1302, THE HON'BLE SUPREME COURT WHILE QUASHI NG THE CANCELLATION OF THE PETITIONER'S LICENCE BY THE DISTR ICT MAGISTRATE, OBSERVED (PAGE 1304) : RECORDING OF REASONS IN SUPPORT OF A DECISION ON A DISPUTED CLAIM BY A QUASI-JUDICIAL AUTHORITY ENSURES T HAT THE ITA NO../DEL/ 7 DECISION IS REACHED ACCORDING TO LAW AND IS NOT THE RE SULT OF CAPRICE, WHIM OR FANCY OR REACHED ON GROUNDS OF POLI CY OR EXPEDIENCY. A PARTY TO THE DISPUTE IS ORDINARILY ENTI TLED TO KNOW THE GROUNDS ON WHICH THE AUTHORITY HAS REJECTED HIS CLAIM. IF THE ORDER IS SUBJECT TO APPEAL, THE NECESSITY TO RECORD RE ASONS IS GREATER, FOR WITHOUT RECORDED REASONS THE APPELLATE A UTHORITY HAS NO MATERIAL ON WHICH IT MAY DETERMINE WHETHER THE F ACTS WERE PROPERLY ASCERTAINED, THE RELEVANT LAW WAS CORRECTLY APPLIED AND THE DECISION WAS JUST. IN WOOLCOMBERS OF INDIA LTD. V. WOOLCOMBERS WORKERS' UNION, AIR 1973 SC 2758, THE HON'BLE SUPREME COURT QUASHED THE AWARD PASSED BY THE INDUSTRIAL TRIBUNAL ON THE GR OUND THAT IT WAS NOT SUPPORTED BY REASONS AND OBSERVED (PAGE 2761): THE GIVING OF REASONS IN SUPPORT OF THEIR CONCLUSION S BY JUDICIAL AND QUASI-JUDICIAL AUTHORITIES WHEN EXERCISIN G INITIAL JURISDICTION IS ESSENTIAL FOR VARIOUS REASONS. FIRST, IT IS CALCULATED TO PREVENT UNCONSCIOUS, UNFAIRNESS OR ARBITRARINESS IN REACHING THE CONCLUSIONS. THE VERY SEARCH FOR REASONS WILL PUT TH E AUTHORITY ON THE ALERT AND MINIMISE THE CHANCES OF UN CONSCIOUS INFILTRATION OF PERSONAL BIAS OR UNFAIRNESS IN THE CON CLUSION. THE AUTHORITY WILL ADDUCE REASONS WHICH WILL BE REGARDED AS FAIR AND LEGITIMATE BY A REASONABLE MAN AND WILL DISCARD IRREL EVANT OR EXTRANEOUS CONSIDERATIONS. SECOND, IT IS A WELL-KNOWN P RINCIPLE THAT JUSTICE SHOULD NOT ONLY BE DONE BUT SHOULD ALSO A PPEAR TO BE DONE. UNREASONED CONCLUSIONS MAY BE JUST BUT THEY MAY N OT APPEAR TO BE JUST TO THOSE WHO READ THEM. REASONED CON CLUSIONS, ON THE OTHER HAND, WILL HAVE ALSO THE APPEARANCE OF JUSTICE. THIRD, IT SHOULD BE REMEMBERED THAT AN APPEAL GENERA LLY LIES ITA NO../DEL/ 8 FROM THE DECISION OF JUDICIAL AND QUASI-JUDICIAL AUTH ORITIES TO THIS COURT BY SPECIAL LEAVE GRANTED UNDER ARTICLE 136. A JUDGMENT WHICH DOES NOT DISCLOSE THE REASONS WILL BE OF LITTLE ASSI STANCE TO THE COURT. THE SAME VIEW WAS REITERATED IN AJANTHA INDUSTRIES V. CENTRAL BOARD OF DIRECT TAXES [1976] 102 ITR 281 (SC ) ; AIR 1976 SC 437 AND SIEMENS ENGINEERING AND MANUFACTURING CO. OF INDIA LTD. V. UNION OF INDIA, AIR 1976 SC 1785. IN TESTEELS LTD. V. N. M. DESAI CONCILIATION OFFICER, AIR 1970 GUJ 1, A FULL BENCH OF THE GUJARAT HIGH COURT SPEAK ING THROUGH P. N. BHAGWATI, C.J. (AS HIS LORDSHIP THEN WAS) MADE A LUC ID ENUNCIATION OF LAW ON THE SUBJECT IN THE FOLLOWING W ORDS (HEADNOTE) : THE NECESSITY OF GIVING REASONS FLOWS AS A NECESSARY COROLLARY FROM THE RULE OF LAW WHICH CONSTITUTES ONE OF THE BASIC PRINCIPLES OF THE INDIAN CONSTITUTIONAL SET UP. THE AD MINISTRATIVE AUTHORITIES HAVING A DUTY TO ACT JUDICIALLY CANNOT T HEREFORE DECIDE ON CONSIDERATIONS OF POLICY OR EXPEDIENCY. THEY MUST D ECIDE THE MATTER SOLELY ON THE FACTS OF THE PARTICULAR CASE, SOLE LY ON THE MATERIAL BEFORE THEM AND APART FROM ANY EXTRANEOUS CONSIDERATIONS BY APPLYING PREEXISTING LEGAL NORMS TO F ACTUAL SITUATIONS. NOW, THE NECESSITY OF GIVING REASONS IS AN I MPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE DUTY TO ACT JUD ICIALLY. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTRAN EOUS OR IRRELEVANT CONSIDERATIONS AND EXCLUDES OR, AT ANY RATE MINIMISES ARBITRARINESS IN THE DECISION-MAKING PROCESS. ITA NO../DEL/ 9 ANOTHER REASON WHICH COMPELS MAKING OF SUCH AN ORDER IS BASED ON THE POWER OF JUDICIAL REVIEW WHICH IS POSSESSED BY THE HIGH COURT UNDER ARTICLE 226 AND THE SUPREME COURT UNDER ARTICLE 32 OF THE CONSTITUTION. THESE COURTS HAVE THE POWER UNDER THE SAID PROVISIONS TO QUASH BY CERTIORARI A QUASI-JUDI CIAL ORDER MADE BY AN ADMINISTRATIVE OFFICER AND THIS POWER OF R EVIEW CAN BE EFFECTIVELY EXERCISED ONLY IF THE ORDER IS A SPEAKI NG ORDER. IN THE ABSENCE OF ANY REASONS IN SUPPORT OF THE ORDER, THE SAID COURTS CANNOT EXAMINE THE CORRECTNESS OF THE ORDER UND ER REVIEW. THE HIGH COURT AND THE SUPREME COURT WOULD BE POWERLESS TO INTERFERE SO AS TO KEEP THE ADMINISTRATIVE OFFICER WITHIN THE LIMITS OF THE LAW. THE RESULT WOULD BE THA T THE POWER OF JUDICIAL REVIEW WOULD BE STULTIFIED AND NO REDRESS BE ING AVAILABLE TO THE CITIZEN, THERE WOULD BE INSIDIOUS ENCOURAGEMEN T TO ARBITRARINESS AND CAPRICE. IF THIS REQUIREMENT IS INSISTE D UPON, THEN THEY WILL BE SUBJECT TO JUDICIAL SCRUTINY AND CO RRECTION. 7. IF WE LOOK AT THE ORDER OF LD DRP EXTRACTED (SUPR A) IN THE LIGHT OF ABOVE PROPOSITION, IT WILL REVEAL THAT DRP HAS NOT A PPLIED ITS MIND. THE ASSESSEE HAD FILED OBJECTIONS RUNNING INTO SEVERAL PAGES A ND NOT A SINGLE OBJECTION HAS BEEN DISCUSSED BY THE LD DRP. THE REFORE, WE SET ASIDE THE ORDER OF LD DRP AND REMIT THE ISSUE BACK TO THE FILE OF LD DRP FOR RE-ADJUDICATION. 8. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 14TH DAY O F DECEMBER, 2012. SD/- SD/- (A.D. JAIN) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 14.12.2012. HMS ITA NO../DEL/ 10 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 11.10.2012 DATE OF DICTATION 10.12.2012 DATE OF TYPING 10.12.2012 DATE OF ORDER SIGNED BY 14.12.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 17.12.2012 & SENT TO THE BENCH CONCERNED.