M/s I-Process Services (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 3015/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3419 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRIT LAL
• Assessee Lawyers: DR RAKESH GUPTA
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER & SHRI K.N. CHARRY, JUDICIAL MEMBER ITA NO.-3015/DEL/2013 ( ASSESSMENT YEAR: 2009-10) I - PROCESS SERVICES (INDIA) PVT. LTD. 3E/5, JHANDEWALAN EXTENSION, NEW DELHI. AABCI3838C VS DCIT CIRCLE 11(1) NEW DELHI. ASSESSEE BY DR. RAKESH GUPTA, ADV. REVENUE BY SH. AMRIT LAL, SR. DR ORDER PER K. NARSIMHA CHARRY, J.M. THIS IS AN APPEAL PREFERRED BY THE ASSESSEE CHALLEN GING THE ORDER DATED 28.02.2013 IN APPEAL NO. 283/2011-12/CI T (A)-XV, NEW DELHI. 2. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN PROVIDING BUSINESS AUXILIARY SER VICES TO ICICI BANK LTD. DURING THE F.Y. 2008-09 THEY VENTURED TO PROVIDE SUCH SIMILAR SERVICES TO ICICI HOME FINANCE COMPANY LTD. BY ENTERING DATE OF HEARING 15.03.2017 DATE OF PRONOUNCEMENT 21.04.2017 2 ITA NO.3015/DEL/2013 INTO A CONTRACT DATED 01.05.2008 WITH THEM. HOWEVE R, BY LETTER DATED 20.04.2009 THE ASSESSEE WAS INFORMED BY THE I CICI HOME FINANCE CO. LTD. THAT THE AGREEMENT DATED 01.05.200 8 WAS DECLARED VOID AB INITIO BY THE BOARD OF DIRECTORS IN THEIR MEETING HELD ON 20.04.2009 AS A RESULT OF WHICH THE TRANSAC TION OF INCOME WAS REVERSED BY THE ASSESSEE AS THERE WAS NO LEGALL Y ENFORCEABLE RIGHT TO SUCH INCOME UNDER A VOID CONTRACT. HOWEVE R, THE AO ADDED BACK A SUM OF RS. 2,05,39,063/- AND RS. 21,73 ,292/- TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CONTENDED THA T THE AMOUNT OF RS. 2,17,13,292/- INCLUDES RS. 2,05,39,063/- ALS O. BY WAY OF ORDER PASSED U/S 154 OF THE ACT THE AO RECTIFIED TH E MISTAKE AND DETERMINED THE AMOUNT OF DISALLOWANCE AT RS. 2,17,1 3,292/- ONLY. THE APPEAL PREFERRED BY THE ASSESSEE AGAINST THE AS SESSMENT ORDER CHALLENGING THE ADDITION OF RS. 2,17,13,292/- WAS D ISMISSED BY THE LD. CIT (A) HOLDING THAT SINCE THE ASSESSEE HAD PER FORMED THEIR PART OF CONTRACT AS AGREED BETWEEN THE PARTIES, THE RE WAS NO JUSTIFICATION TO HOLD THAT NO LAWFUL INCOME HAD ARI SEN TO THE ASSESSEE ON THE GROUND OF NON-EST CONTRACT. 3 ITA NO.3015/DEL/2013 3. AGGRIEVED BY THE IMPUGNED ORDER DISMISSING THE A PPEAL, THE ASSESSEE IS BEFORE US IN THIS APPEAL ON THE GROUND THAT THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADD ITION. 4. IT IS ARGUED BY THE LD. AR THAT THE PROVISIONS O F SECTION 297 OF THE COMPANIES ACT ARE MANDATORY IN NATURE AND ANY V IOLATION THEREOF RENDERS THE CONTRACT VOID AB INITIO BUT NOT VOIDABLE AT THE OPTION OF THE BOARD AND SINCE NO REAL INCOME ARISES UNDER A VOID CONTRACT, THE INCOME TRANSACTIONS WERE REVERSED BY THE ASSESSEE AS SUCH NO TAX COULD BE ASSESSED MERELY ON THE BOOK EN TRIES. ACCORDING TO HIM IT IS NEITHER THE ENTRIES IN THE B OOKS OF ACCOUNT NOR CONSENT OF THE PARTIES THAT WOULD GIVE RISE TO THE DETERMINATION OF TAX LIABILITY, BUT IT IS THE REAL INCOME THAT AL ONE HAS TO BE BROUGHT TO TAX. PER CONTRA, LD. DR VEHEMENTLY RELI ED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CAREFULLY GONE THROUGH THE RECORD. VIDE PARAGRAPH NO. 7.3 THE LD. CIT (A) OBSERVED AS FOLLOWS: 7.3 ON CAREFUL EXAMINATION OF THE ABOVE PROVISIONS, IT IS EVIDENT THAT IN CASE OF A CONTRACT COVERED IN SECTION 297 (1) READ WITH SUB-SECTION (2), PRIOR CONSENT OF THE BOARD OF DIRECTORS OF THE COMPANY IS MORE THAN RS. 1 CRORE, THE SAID COMPANY, 4 ITA NO.3015/DEL/2013 OSTENSIBLY UPON OBTAINING THE CONSENT FROM THE BOD, IS ALSO REQUIRED TO OBTAIN PRIOR APPROVAL FROM THE CENTRAL GOVERNMENT. IN CIRCUMSTANCES OF URGENT NECESSITY, THESE PROVISIONS ALSO ALLOW OBTAINING TH E CONSENT OF THE BOARD WITHIN THREE MONTHS OF SIGNING OF THE AGREEMENT, WHERE AGREEMENT HAS BEEN ENTERED INTO WITHOUT THE CONSENT OF THE BOARD. IN THE ABSEN CE OF THE CONSENT OF THE BOARD, OR IF CONSENT IS NOT ACCORDED TO ANY CONTRACT UNDER THIS SECTION, ANYTHING DONE IN PURSUANCE OF THE CONTRACT SHALL BE VOIDABLE AT THE OPTION OF THE BOARD. THE PROVISIONS RELATIN G THE APPROVAL OF CENTRAL GOVERNMENT IN RESPECT OF COMPANIES WITH SHARE CAPITAL OVER RS. 1 CRORE WERE INTRODUCED LATER. HOWEVER, THESE PROVISIONS ARE SILENT WHETHER THE APPROVAL OF THE CENTRAL GOVERNMENT CAN BE OBTAINED WITH RETROSPECTIVE EFFEC T WITHIN 3 MONTHS. FURTHER, UNLIKE THE CASE OF COMPANIES HAVING SHARE CAPITAL BELOW RS. 1 CRORE, WHERE CONTRACTS ENTERED WITHOUT OBTAINING THE CONSENT OF THE BOARD ARE LIABLE TO BE HELD AS VOIDABLE AT THE OPTION OF THE BOARD BY VIRTUE OF THE PROVISIONS OF SUB-SECTION (5), IN RESPECT OF DEFAULT IN OBTAINING APPROVAL OF CENTRAL GOVERNMENT IN CASE OF COMPANIES HAVING SHARE CAPITAL ABOVE RS. 1 CRORE, THERE IS NO CORRESPONDING PROVISION IN RESPECT OF SIMILAR DEFAULT. HE WAS THEREFORE, CLEAR IN HIS OBSERVATION THAT THE CONTRACTS ENTERED WITHOUT OBTAINING THE CONSENT OF THE BOARD ARE TO BE TERMED AS VOIDABLE AT THE OPTION OF THE BOARD IN THE CASE OF THE COMPANIES HAVING SHARE CAPITAL BELOW 1 CRORE, BUT T HERE IS NO CORRESPONDING OR ANALOGOUS PROVISION IN THE COMPANI ES ACT FOR A SIMILAR SITUATION IN CASE OF COMPANIES HAVING SHARE CAPITAL ABOVE RS. 1 CRORE. LD. AR PRODUCED BEFORE US BY WAY OF P APER BOOK VIDE 5 ITA NO.3015/DEL/2013 PAGE NO. 35 TO 41 A COPY OF EXTRACT OF SECTION 297 OF THE COMPANIES ACT, 1956 FROM A. RAMAYA GUIDE TO THE COM PANIES ACT, 2006 EDITION AND RELEVANT EXTRACTS OF INDIAN C ONTRACTS ACT, 1972 AND AT PAGE NO. 36 IT IS CLEARLY STATED THAT I N THE ABSENCE OF APPROVAL OF CENTRAL GOVERNMENT, WHERE NECESSARY, TH E CONTRACT SHALL BE VOID. NOTHING CONTRARY TO THIS IS PRODUCE D BEFORE US AND THIS STATEMENT SUPPLEMENTS THE OBSERVATIONS OF THE LD. CIT (A) TO THE EFFECT THAT WANT OF CONSENT IN RESPECT OF THE C OMPANIES WITH SHARE CAPITAL BELOW RS. 1 CRORE IS VOIDABLE AT THE OPTION OF THE BOARD, WHEREAS IT WOULD RENDER THE CONTRACT VOID AB INITIO IN CASE OF COMPANIES SHARE CAPITAL MORE THAN RS. 1 CRORE. 6. FURTHER, IN THIS CASE, THE ASSESSEE ALLEGES THAT ON THE CONTRACT BECOMING VOID AB INITIO, THE TRANSACTION O F INCOME FROM ICICI HOME FINANCING CO. LTD. WAS REVERSED BY THE A SSESSEE SINCE THERE WAS NO LEGALLY ENFORCEABLE RIGHT TO SUCH INCO ME ON THE CONTRACT BEING DECLARED AS VOID AB INITIO . ON THIS ASPECT THERE IS NO DENIAL OF FACT BY THE REVENUE. IN THE CIRCUMSTA NCES, WE ARE OF THE CONSIDERED OPINION THAT NO REAL INCOME HAD ACCR UED TO THE ASSESSEE UNDER A VOID CONTRACT AS SUCH THE ADDITION MADE ON THE 6 ITA NO.3015/DEL/2013 BASIS OF THE INCOME UNDER A VOID CONTRACT AND THAT TOO WHICH WAS REVERSED SUBSEQUENTLY, IS UNSUSTAINABLE. HENCE, TH E GROUNDS OF APPEAL ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED AND THE AO IS DIRECTED TO DELETE THE IMPUGNED ADDITION. ORDER PRONOUNCED IN THE OPEN COURT ON 21.04.2017 SD/- SD/- (P.K. BANSAL) (K. NARSIMHA CH ARRY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21.04.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO.3015/DEL/2013 DRAFT DICTATED ON 20.04.2017 DRAFT PLACED BEFORE AUTHOR 20.04.2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 21.04.2017 KEPT FOR PRONOUNCEMENT ON 21.04.2017 FILE SENT TO THE BENCH CLERK 21.04.2017 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.