PARAMOUNT HEALTH SERVICES P.LTD, MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 296/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9429 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 10-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Assessee Lawyers: NITESH S JOSH I
• Keywords: Opportunity of being heard; Principle of natural justice; Commercial expediency

Judgement Text

, , , , , ,, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI . . , ! '# , $ BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.296/MUM/2013 ASSESSMENT YEAR: 2006-07 PARAMOUNT HEALTH SERVICES PVT. LTD. ELITE HOUSE, 2 ND FLOOR, 54-A, MATHURADAS VASANJI ROAD, ANDHERI(EAST), MUMBAI - 400093 / VS. DY. COMMISSIONER OF INCOME-TAX, CIRCLE-7(1), MUMBAI ( '() /ASSESSEE) ( *# / REVENUE) P.A. NO.AACCP4465H '() + , + , + , + , / // / ASSESSEE BY) SHRI NITESH S. JOSHI *# + , + , + , + , / REVENUE BY : SHRI AKHILENDRA YADAV + )-! / / / / DATE OF HEARING : 20 /01/2015 ./0 + ) -! / DATE OF PRONOUNCEMENT : 20 /01/2015 DATE OF ORDER : '1 '1 '1 '1 + )-! / 23 /01/2015 '1 '1 '1 '1 / / / / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 06/10/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, AND RAISED THE FOLLOWING GROUNDS:- PARAMOUNT HEALTH SERVICES PVT. LTD . . 2 1. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.2,40,40,509 MADE BY THE AO BY INVOKING THE PROVI SIONS OF SECTION 40A(2)(B) OF THE ACT BEING 50% OF THE AM OUNT OF RS.4,80,81,018 PAID BY THE APPELLANT TO PARAMOUNT HEALTHCARE MANAGEMENT PVT. LTD. (PHM) FOR RENDERING SERVICES IN RELATION TO TPA BUSINESS. 2. THE CIT(A) FAILED TO APPRECIATE THAT THE PRE- CONDITIONS FOR INVOKING THE PROVISIONS OF SECTION 4 0A(2) WERE NOT FULFILLED IN THE PRESENT CASE AND, THEREFO RE, THE DISALLOWANCE OF RS.2,40,40,509 AS MADE BY THE AO UN DER THE SAID SECTION WAS ILLEGAL AND BAD IN LAW. 3. THE CIT(A) FAILED TO APPRECIATE THAT THE AMOUNT OF RS.4,80,81,018 WAS PAID BY THE APPELLANT TO PHM FOR RENDERING SERVICES IN RELATION TO TPA BUSINESS. THE SAID PAYMENT WAS BASED ON COMMERCIAL EXPEDIENCY AND WAS REASONABLE. 4. THE CIT(A) FAILED TO APPRECIATE THAT THE AGREEMENT FOR RENDERING OF SERVICES BY PHM TO THE APPELLANT WAS IN FORCE FROM ASSESSMENT YEAR 2001-02 . THERE WAS A REDUCTION IN THE FEES TO BE PAID BY THE APPELLANT TO PHM FOR THE YEAR UNDER CONSIDERATION. SINCE THE PAY MENT MADE BY THE APPELLANT TO PHM HAD BEEN ACCEPTED BY THE REVENUE TO BE REASONABLE IN THE EARLIER YEARS AS NO DISALLOWANCE WAS MADE IN THE SAID YEARS, THE PROVIS IONS OF SECTION 40A(2) COULD NOT HAVE BEEN INVOKED FOR THE YEAR UNDER CONSIDERATION. 5. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABO VE THE DISALLOWANCE OF 50% OF THE TOTAL EXPENSES MADE ON A N ADHOC BASIS BY THE AO AND UPHELD BY THE CIT(A) IS EXCESSI VE. 6. THE CIT(A)/ AO ERRED IN MAKING THE FOLLOWING OBSERV ATIONS: A. THE ENTIRE PAYMENT OF RS.4,80,81,018 IS AN EXPENDIT URE INCURRED FOR SYSTEMATICALLY OVERCOMING THE RESTRICT ION IMPOSED BY IRDA ON PHM AND IT IS PHM WHO ENJOYS THE FRUITS OF APPELLANT'S EFFORTS. B. THE PURPOSE OF MAKING THE PAYMENT OF RS.4,80,8 1,01 8 TO PHM IS DIVERSION OF PROFIT AS THEY HAVE SUFFERED HU GE LOSS IN THEIR OWN ACTIVITY. C. PHM RENDERS SERVICES TO THE APPELLANT NOT BECAU SE OF ANY BUSINESS COMPULSION. D. THE BASIS FOR MAKING PAYMENT OF PROCESSING CHA RGES HAS NOT BEEN PROPERLY EXPLAINED BY THE APPELLANT AT ANY STA GE OF THE PROCEEDINGS AND SUCH PAYMENT IS NOT VERIFIABLE. E. THE MEMORANDUM OF UNDERSTANDING DATED DECEMBER 05, PARAMOUNT HEALTH SERVICES PVT. LTD . . 3 2001 AND THE SUPPLEMENTAL AGREEMENT DATED MARCH 04, 2005 ARE SELF SERVING DOCUMENTS. F. MEMORANDUM OF UNDERSTANDING HAS BEEN ENTERED BETWEEN THE APPELLANT AND PHM WITH A VIEW TO INFLAT E THE EXPENDITURE AND DISCLOSE SUPPRESSED TAXABLE INC OME. 2. AT THE TIME OF HEARING, SHRI NITESH S. JOSHI, LD . COUNSEL FOR THE ASSESSEE, SO FAR AS GROUNDS NO.1 TO 4 IN THE GR OUNDS OF APPEAL ARE CONCERNED, CHALLENGED UPHOLDING THE DISA LLOWANCE OF RS.2,40,40,509/-, INVOKING THE PROVISIONS OF SECTIO N 40A(2)(B) OF THE INCOME TAX ACT, 1962(HEREINAFTER THE ACT), BEIN G 50% OF THE AMOUNT OF RS.4,80,81,018/- PAID TO PARAMOUNT HEALTH CARE MANAGEMENT PVT. LTD. (IN SHORT PHM) FOR RENDERING S ERVICES IN RELATION TO TPA BUSINESS. THE CRUX OF ARGUMENT ADV ANCED ON BEHALF OF THE ASSESSEE IS THAT OUT OF THE TOTAL AMO UNT OF RS.4,80,81,018/-, PAID BY THE ASSESSEE TO PHM WAS W RONGLY DISALLOWED TO THE EXTENT OF 50% BY THE ASSESSING OF FICER AND AFFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (APP EALS). PLEA WAS RAISED THAT UP TO THE YEAR 2001, PHM PROVIDED S IMILAR SERVICES AND THE DEPARTMENT ALLOWED THE SAME AND FO R THE YEAR UNDER CONSIDERATION, THE CLAIMED DEDUCTION WAS DISA LLOWED WITHOUT ASSIGNING ANY VALID REASON. THE LD. COUNSEL EXPLAINED THAT THE ASSESSEE WAS TO TAKE APPROVAL FROM MINISTR Y OF COMPANY AFFAIRS, WHICH WAS GRANTED FROM 2001 TO 2006. THE LD. COUNSEL FURTHER EXPLAINED THAT THE PAYMENT IS NOT EXCESSIVE AND THE ASSESSEE SUFFERED LOSS DURING THE YEAR AND THE LD. ASSESSING OFFICER MADE THE DISALLOWANCE WITHOUT CITING ANY CO MPARABLE CASE. THE LD. COUNSEL INVITED OUR ATTENTION TO PAP ER BOOK PAGE- 24 TO 30, PAGE 58, 59 AND 62 OF THE PAPER BOOK. IT WAS ASSERTED THAT SINCE IN EARLIER YEARS, SUCH CLAIM WAS ALLOWED , THEREFORE, PARAMOUNT HEALTH SERVICES PVT. LTD . . 4 CONSISTENCY HAS TO BE MAINTAINED. THE SERVICES WER E CLAIMED TO BE DISCONTINUED FROM 01/01/2006. ON THE ISSUE OF CO NSISTENCY, THE LD. COUNSEL PLACED RELIANCE UPON THE FOLLOWING JUDICIAL PRONOUNCEMENTS:- A. CIT VS AKASH DEEP PROMOTERS AND DEVELOPMENT (P.) LT D. (146 TAXMAN 389) (DELHI) B. UDAIPUR DISTILLERY COMPANY LTD. VS JCIT (100 ITD 42 2) (JODH.) C. MEHTA TRANSPORT COMPANY VS ITO (39 TAXMAN 271)(AHD. ITAT) D. DELHI COMMISSIONER OF INCOME-TAX VS SHRIRAM PISTONS AND RINGS LTD. (181 ITR 230)(1990) (DEL.) E. ANAND DYES INDUSTRIES (P.) LTD. (ITA NO.346 & 347/AHD/1995) F. FIRST INCOME TAX OFFICER VS BALSARA HYGIENE PRODUCT S (ITA NO.3088 & 3891/BOM/1984 ) 2.1. ON THE OTHER HAND, SHRI AKHILENDRA YADAV, LD. DR, STRONGLY DEFENDED THE CONCLUSION ARRIVED AT IN THE ASSESSMEN T ORDER/IMPUGNED ORDER BY CONTENDING THAT THERE WAS N O EXPLANATION SUPPORTED WITH CORROBORATIVE EVIDENCE B Y THE ASSESSEE REGARDING PROVIDING SERVICES BY PHM. PHM HAD NO TAXABLE INCOME AND THE AGREEMENT IS MERELY A SELF S ERVICE DOCUMENT. THE ASSESSEE HAS NEVER SUBMITTED BEFORE T HE ASSESSING OFFICER, THE DETAILS OF RESOURCES DEPLOYE D BY PHM ENGAGED IN PROVIDING SERVICES TO THE ASSESSEE, I.E. DETAILS OF EMPLOYEES, THEIR QUALIFICATION, EXPERIENCE, DETAILS OF CENTERS, FIXED ASSETS, DETAILS OF NETWORK, AND OTHER DETAILS WITH REGARD TO TECHNICAL EQUIPMENTS, ETC. THE ASSESSEE HAS NOT ES TABLISHED PARAMOUNT HEALTH SERVICES PVT. LTD . . 5 BEFORE THE ASSESSING OFFICER THAT THE PAYMENTS WERE REASONABLE COMPARE TO MARKET RATE WHICH ARE UNCONTROLLED COMPA RABLES CIRCUMSTANCES. IT WAS ALSO PLEADED THAT THE REASONA BILITY OF PAYMENT WAS NEVER EXPLAINED BY THE ASSESSEE. THE A SSESSEE HAS ONLY SUBMITTED THE LIST OF SERVICES WHICH ARE ALREA DY REFLECTED IN ITS AGREEMENT BUT HAS NOT PROVIDED THE SPECIFIC DET AILS OF SERVICES, I.E. UNDER WHICH SERVICES HAD WHAT SERVIC ES WERE PROVIDED, HOW THEY ARE PROVIDED AND HOW MUCH RESOUR CES OF WHOM WERE INVOLVED AND WHETHER THEY WERE REALLY NEE DED BY THE ASSESSEE AND WHETHER THOSE RESOURCES WERE REALLY NO T AVAILABLE WITH THE ASSESSEE, THEREFORE, THE ASSESSMENT ORDER SHOULD BE CONFIRMED. THE LD. DR STRONGLY CONTENDED THAT EVEN FOR EARLIER ASSESSMENT YEAR, REASONABILITY OF EXPENSES WAS NOT DISCUSSED AND EVEN THE COMPARABLES WERE NEVER EXPLAINED BEFOR E THE ASSESSING OFFICER BY THE ASSESSEE. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS IN THE BUSINESS OF THIRD PARTY ADMINIST RATOR (TPA) PROVIDING CASHLESS HOSPITALIZATION AND CLAIM OF PRO CESSING OF MEDICAL POLICIES FOR CORPORATE. AS PER AGREEMENT, M/S PARAMOUNT HEALTH CARE MANAGEMENT (P.) LTD. RENDERED SOME SERVICES TO THE ASSESSEE. BECAUSE OF THIS AGREEMEN T, THE ASSESSEE MADE SOME PAYMENTS TO PHM. AS PER THE REV ENUE, THE BASIS FOR GIVING THE PROCESSING CHARGES WAS NEITHER VERIFIABLE NOR EXPLAINED BY THE ASSESSEE. THE PHM DISCONTINUED IT S ACTIVITIES BECAUSE IT WAS NOT ENTITLED UNDER IRDA REGULATIONS WHICH CAME INTO FORCE FROM 17/07/2001 AS THE FOREIGN HOLDING W AS IN EXCESS OF 26%. BECAUSE OF THIS SPECIFIC PROVISION, PHM W AS NOT AUTHORIZED TO DO BUSINESS, CONSEQUENTLY, THE ASSESS EE WAS PARAMOUNT HEALTH SERVICES PVT. LTD . . 6 INCORPORATED WITH THE HELP OF GROUP PERSONS AS PER AGREEMENT DATED 05/12/2001. IT IS ALSO NOTED THAT PHM WAS NO T HAVING ANY TAXABLE INCOME. THE STAND OF THE LD. DR/DEPART MENT IS THAT A SELF SERVING DOCUMENT/AGREEMENT WAS CREATED ON TH E BASIS OF WHICH A HUGE AMOUNT OF RS.4,80,81,018/- WAS PAID. T HERE IS A FINDING RECORDED IN THE ASSESSMENT ORDER AS WELL AS IN THE IMPUGNED ORDER THAT NO PLAUSIBLE EXPLANATION WAS AD VANCED BY THE ASSESSEE REGARDING THE REASONABLENESS OF THE HU GE EXPENDITURE. EVEN BEFORE US, THE EXPLANATION IS TH AT THE INCOME OF THE ASSESSEE INCREASED MANIFOLDS TO 18.41 CRORES IN THE IMPUGNED YEAR FROM 1.96 CRORES IN THE YEAR 2003-04. IT IS ALSO NOTED THAT PHM SHOWED NIL INCOME WHEN IT WAS PAID R S.4.81 CRORES BY THE ASSESSEE ITSELF SEEMS TO BE A DEVICE TO INFLATE THE EXPENDITURE UNDER THE GUISE OF MEMORANDUM OF UNDERS TANDING DATED 05/12/2001. BROADLY, WE ARE IN AGREEMENT WIT H THE OBSERVATION MADE IN THE IMPUGNED ORDER (LATER PORTI ON OF PAGE-8) THAT UNDER THE GUISE OF MOU AN ATTEMPT HAS BEEN MAD E TO SUPPRESS THE TAXABLE INCOME OF THE ASSESSEE TO INFL ATE THE EXPENDITURE AND RESULTANTLY SHOWING NO TAXABLE INCO ME IN THE HANDS OF THE RECIPIENT I.E. PHM. THE ASSESSEE HAS NOT GIVEN THE SPECIFIC DETAILS ALONGWITH EVIDENCES OF AVAILING OF SERVICES FROM PHM. NEITHER THE ASSESSEE NOR THE ASSESSING OFFICE R HAS EXAMINED THE REASONABLENESS OF PAYMENTS COMPARED TO UNCONTROLLED COMPARABLE CIRCUMSTANCES. SINCE, THE ASSESSEE HAS NOT SUBMITTED EVIDENCES AND MARKET RATE COMPARA BILITY OF ITS SERVICES BEFORE THE ASSESSING OFFICER AND ASSESSING OFFICER ALSO HAS NOT MADE ADDITION ON THE BASIS OF COMPARABLE MA RKET RATE AND HAS NOT GIVEN ANY REASON AS TO HOW THE REMAININ G PAYMENTS ALLOWED TO THE ASSESSEE WAS AT ARMS LENGTH RATE. I N VIEW OF PARAMOUNT HEALTH SERVICES PVT. LTD . . 7 UNCLEAR FACTS/REASONING AND KEEPING IN VIEW, THE PR INCIPLE OF NATURAL JUSTICE THAT NO PREJUDICE IS CAUSED TO EITH ER SIDE THIS APPEAL IS RESTORED TO THE FILE OF THE ASSESSING OFF ICER TO EXAMINE THE REASONABLENESS OF THE PAYMENTS MADE BY THE ASSE SSEE AND ALSO TO EXAMINE WHETHER THE ASSESSEE UNDER THE GUIS E OF MOU HAS DEVISED A TECHNIQUE TO REDUCE ITS TAXABLE INCOM E MORE SPECIFICALLY WHEN, THE RECIPIENT I.E. PHM HAS NOT D ECLARED ANY INCOME. OUR REASONING IS FURTHER STRENGTHENED BY TH E FACT THAT AT THE LATER STAGE, SUCH SERVICES WERE DISCONTINUED WI TH EFFECT FROM 01/01/2006. IN VIEW OF THE ABOVE OBSERVATION, THE A SSESSEE IS DIRECTED TO FURNISH EVIDENCES AND REASONABLENESS/CO MPARABLE TO THE MARKET RATE IN SUPPORT OF ITS CLAIM FOR WHICH T HE ASSESSEE BE GIVEN OPPORTUNITY OF BEING HEARD, WITH FURTHER LIBE RTY TO FURNISH EVIDENCE, IF ANY, CONSEQUENTLY, GROUNDS NO. 1 TO 4 ARE ALLOWED FOR STATISTICAL PURPOSES. 2.4. IN GROUND NO.5, THE ASSESSEE, WITHOUT PREJUDIC E, HAS PLEADED THAT THE ADDITION MADE BY THE ASSESSING OFF ICER IS EXCESSIVE. SINCE, WE HAVE RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICE, CONSEQUENTLY, THE GROUND NO.5 OF THIS APPEAL HAS REMAINED FOR ACADEMIC INTEREST ONLY AND AUTOMAT ICALLY DISPOSED OFF. 2.5. SO FAR AS, THE ISSUE OF CONSISTENCY IS CONCERN ED, IT CAN ONLY BE APPLIED WHEN THE FACTS ARE CLEAR AND DUE EXPLANA TION, IF ANY, IS FURNISHED BY THE ASSESSEE, THEREFORE, WE REFRAIN OURSELVES TO ADJUDICATE ON THE ISSUE OF CONSISTENCY MORE SPECIFI CALLY WHEN, WE HAVE RESTORED THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER. EVEN OTHERWISE, SINCE UNDER THE GUISE OF MOU, THE FACTS ARE CAMOUFLAGED/COLOURABLE DEVICE AND SINCE NO PROPER E XPLANATION PARAMOUNT HEALTH SERVICES PVT. LTD . . 8 AT ANY STAGE, WAS FURNISHED FOR THE REASONABLENESS OF EXPENSES, THE BENEFIT OF CONSISTENCY CANNOT BE EXTENDED TO TH E ASSESSEE. FINALLY, APPEAL OF THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 23/01/2015. '1 + ./0 2'3 23/01/2015 / + 9 SD/ - (N.K.BILLAIYA) SD/ - (JOGINDER SINGH) ! '# ! '# ! '# ! '# / ACCOUNTANT MEMBER '# '# '# '# / JUDICIAL MEMBER MUMBAI; 2' DATED : 23/01/201 5 F{X~{T? P.S/. .. '1 + :) ;0) '1 + :) ;0) '1 + :) ;0) '1 + :) ;0)/ COPY OF THE ORDER FORWARDED TO : 1. <= / THE APPELLANT 2. :><= / THE RESPONDENT. 3. ? ( ) / THE CIT, MUMBAI. 4. ? / CIT(A)- , MUMBAI 5. A9 :) , , / DR, ITAT, MUMBAI 6. 9B' C / GUARD FILE. '1 '1 '1 '1 / BY ORDER, >) :) //TRUE COPY// D DD D/ // /E * E * E * E * (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI