THERMO FISHER SCIENTIFIC INDIA P. LTD, MUMBAI V. ACIT CIR 10(3), MUMBAI

ITA 3550/MUM/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0666 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 22-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY LD DR
• Assessee Lawyers: GIRISH DAVE LD
• Keywords: Principle of natural justice; Additional evidence; Bad and doubtful debts; Valuation report
• Section: 143(3); 263

Judgement Text

ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.4288/MUM/2011 ( ASSESSMENT YEAR: 2006-07) THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED [FORMERLY KNOWN AS THERMO ELECTRO LLS INDIA PVT. LTD.] 403-404, B WING,DELPHI HIRANANDANI BUSINESS PARK POWAI,MUMBAI-400 076 VS. COMMISSIONER OF INCOME TAX - 10 MUMBAI ! ' PAN/GIR NO. AABCT-3207-A ( !# APPELLANT ) : ( $%!# RESPONDENT ) & I.T.A. NO.3550/MUM/2012 ( ASSESSMENT YEAR: 2006-07) THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED [FORMERLY KNOWN AS THERMO ELECTRO LLS INDIA PVT. LTD.] 403-404, B WING,DELPHI HIRANANDANI BUSINESS PARK POWAI,MUMBAI-400 076 VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-10(3) MUMBAI ! ' PAN/GIR NO. AABCT-3207-A ( !# APPELLANT ) : ( $%!# RESPONDENT ) A SSESSEE BY : GIRISH DAVE, LD. AR RE VENUE BY : MANJUNATHA SWAMY , LD. DR & DATE OF HEARING : 20/12/2017 '() & / DATE OF PRONOUNCEMENT : 17/01/2018 ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 2 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEALS, BOTH BY ASSESSEE FOR ASSE SSMENT YEAR [AY] 2006-07 CONTEST SEPARATE ORDERS OF LOWER AUTHO RITIES ON DIFFERENT GROUNDS. ITA NO. 4288/MUM/2011 CONTEST THE INVOCATI ON OF REVISIONAL JURISDICTION U/S 263 BY LD. COMMISSIONER OF INCOME TAX-10 [CIT], MUMBAI WHEREAS ITA NO. 3550/MUM/2012 CONTEST THE QU ANTUM ADDITIONS IN CONSEQUENTIAL ORDER AS CONFIRMED BY FI RST APPELLATE AUTHORITY. SINCE THE ASSESSEE HAS CHALLENGED THE ISSUE OF JURI SDICTION U/S 263, WE TAKE UP THE SAME FIRST. ITA 4288/MUM/2011 2.1 FACTS, IN BRIEF, ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING, INSTALLATION AND SALE OF MEDICAL EQUIPMENTS WAS ASSESSED FOR IMPUGNED AY ON 12/12/2008 U/S 143(3) AT RS.41.90 LACS WHICH WAS SA ME AS RETURNED INCOME. SUBSEQUENTLY, LD. CIT, VIDE ORDER DATED 28/ 03/2011 INVOKING REVISIONAL JURISDICTION U/S 263 DIRECTED LD. AO TO FRAME FRESH ASSESSMENT AFTER CONSIDERING CERTAIN POINTS AS NOTED BY LD. CI T IN THE IMPUGNED ORDER. THE REVISIONAL JURISDICTION, AS EVIDENT FROM THE IMPUGNED ORDER, STEMS OUT OF CERTAIN REPORTING MADE IN TAX AUDIT RE PORT OF THE ASSESSEE WHERE IT WAS NOTED THAT THE FOLLOWING ITEMS, THOUGH REQUIRED TO BE ADDED BACK TO THE INCOME OF THE ASSESSEE, WERE OMITTED TO BE ADDED BACK AND ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 3 HENCE, THE QUANTUM ASSESSMENT ORDER WAS ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE, REQUIRED REVISION U/S 263:- NO. ITEM AMOUNT (RS.) 1. SHARE ISSUE EXPENSES 1,95,120/- 2. SALES TAX PENAL CHARGES 80,740/- 3. PROVISION FOR GRATUITY 35,17,971/- 4. ADVANCES WRITTEN OFF 1,77,455/- 5. PROVISION FOR DOUBTFUL DEBTS 5,000/- 6. COMMISSION ON WARRANTY INCOME 51,18,356/- TOTAL 90,94,642/ - AGGRIEVED BY THE EXERCISE OF SAID JURISDICTION, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 2.2 THE LD. COUNSEL FOR THE ASSESSEE [AR] DREW OUR ATTENTION TO THE SHOW CAUSE NOTICE DATED 17/06/2010 AS PLACED BEFORE US TO PLEAD THAT LD. CIT COULD NOT ELABORATE AS TO HOW THE QUANTUM A SSESSMENT ORDER WAS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE [DR] DREW OUR ATTEN TION TO THE QUANTUM ASSESSMENT ORDER TO PLEAD THAT NO INQUIRY, WHATSOEV ER, WERE MADE BY THE LD. AO ON THE MATTERS ENUMERATED BY LD. CIT AND OMISSION TO DO THE SAME HAS RESULTED INTO UNDER-ASSESSMENT OF ASSESSEE S INCOME AND THEREFORE, INVOCATION OF JURISDICTION U/S 263 WAS P ERFECTLY JUSTIFIED. OUR ATTENTION IS FURTHER DRAWN TO THE FACT THAT THE REV ENUE HAS NO RECOURSE AGAINST THE SHORTCOMINGS / OMISSIONS / ERRORS MADE BY LD. AO EXCEPT INVOKING REVISIONAL JURISDICTION U/S 263 AND THEREF ORE, THE SAME WAS RIGHTLY INVOKED. 2.3 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD. AT THIS STAGE, WE ARE NOT CONCE RNED WITH THE MERITS OF THE CASE BUT LIMITED TO THE ISSUE THAT WHETHER TWIN CONDITIONS VIZ. ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 4 ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AS ENVISAGED BY THE PROVISIONS OF SECTION 263 ARE, PRIMA FACIE, FULFILLED OR NOT. THE PERUSAL OF THE QUANTUM ORDER REVEALS THAT LD. AO HA S NOWHERE DISCUSSED THE ALLOWABILITY / ADMISSIBILITY OF THE A BOVE SIX ITEMS AS ENUMERATED BY LD. CIT IN THE SHOW-CAUSE NOTICE. THE LD. CIT, AFTER PERUSAL OF TAX AUDIT REPORT, NOTED THAT THESE ITEMS WERE REQUIRED TO BE DISALLOWED OR ADDED BACK TO THE INCOME OF THE ASSES SEE BUT LD. AO OMITTED TO DO SO. AFTER PERUSING THE QUANTUM ORDER, SHOW-CAUSE NOTICE, WE ARE OF THE OPINION THAT LD. AO HAS OMITTED TO NO TE THOSE SIX POINTS AS REPORTED IN THE TAX AUDIT REPORT WHILE FRAMING THE QUANTUM ASSESSMENT ORDER. THE LD. AR COULD NOT SHOW ANY EVIDENCE TO DE MONSTRATE THAT DISCUSSIONS ON ANY OF THESE ITEMS WERE, AT ALL, MAD E DURING QUANTUM ASSESSMENT PROCEEDINGS AND THEY SAME WERE DULY NOTE D BY LD. AO. HENCE, ON THE POINT OF JURISDICTION, WE FIND OURSEL VES IN AGREEMENT WITH THE REVENUE THAT THE QUANTUM ASSESSMENT ORDER RIGHT LY CALLED FOR INVOCATION OF REVISIONAL JURISDICTION U/S 263 BY LD . CIT. THEREFORE, FINDING THE SAME IN ORDER, WE DISMISS ASSESSEES APPEAL. ITA 3550/MUM/2012 3.1 BY WAY OF THIS APPEAL, THE ASSESSEE HAS CONTEST ED THE QUANTUM ADDITIONS MADE BY LD. AO IN CONSEQUENTIAL ORDER PAS SED U/S 143(3) READ WITH SECTION 263 ON 16/12/2011 AND AS SUSTAINED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-22 [CIT(A)] , APPEAL NO.CIT(A)-22/ACIT- 10(3)/IT.429/2011-12 DATED 02/03/2012. 3.2 CONSEQUENT TO INVOCATION OF REVISIONAL JURISDIC TION U/S 263, THE ASSESSEE HAS BEEN SADDLED WITH AGGREGATE ADDITIONS OF RS.90,94,642/- ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 5 AGAINST SIX ITEMS WHICH WAS FURTHER CONTESTED WITHO UT ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 02/03/2 012. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3.3 THE LD. COUNSEL FOR ASSESSEE, TAKING US THROUGH VARIOUS DOCUMENTS PLACED IN THE PAPER-BOOK CONTESTED THE AD DITIONS WHEREAS LD. DR DEFENDED THE STAND OF LOWER AUTHORITIES. 4.1 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, IT IS N OTED THAT SHARE ISSUE EXPENSES OF RS.1,95,120/- INCURRED BY THE ASSESSEE ARE CAPI TAL IN NATURE BEING INCURRED TO EXPAND THE CAPITAL BASE OF THE CO MPANY AND HENCE, DISALLOWABLE. THEREFORE, ADDITIONS TO THAT EXTENT S TAND CONFIRMED. SIMILARLY, THE LD. AR CONTENDED THAT SALES TAX PENAL CHARGES OF RS.80,740/- AS CLAIMED BY THE ASSESSEE DO NOT REPRE SENT ANY PENALTY PAYMENT BUT ONLY THE ADDITIONAL SALES TAX LIABILITY OF EARLIER YEARS. SINCE LD. AR COULD NOT PRODUCE ANY DOCUMENTARY EVIDENCE T O PROVE THE SAME, THE MATTER BEING FACTUAL ONE, IS BEING RESTORED TO LD. AO FOR THE LIMITED PURPOSE OF VERIFICATION OF THE STATED FACT AS CONTE NDED BY LD. AR. IF THE AMOUNT REPRESENTS ADDITIONAL SALES TAX LIABILITY AS CONTENDED BY LD.AR, THE IMPUGNED ADDITION SHALL STAND DELETED AND NEEDL ESS TO SAY THAT THE PENAL CHARGES ARE NOT ALLOWABLE TO THE ASSESSEE. TH E ASSESSEE IS DIRECTED TO PRODUCE THE RELEVANT DOCUMENTARY EVIDEN CES IN THIS REGARD BEFORE LD. AO. ACCORDINGLY, THIS GROUND STANDS ALLO WED FOR STATISTICAL PURPOSES. 4.2 THE ADVANCES WRITTEN-OFF FOR RS.1,77,455/-, AS PER THE CONTENTION OF LD. AR, REPRESENTS WRITE-OFF OF CERTAIN ADVANCES GI VEN TO VARIOUS EMPLOYEES TO INCUR EXPENDITURE ON TOURS, MISCELLANE OUS ADVANCES ETC. ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 6 AND SIMILARLY THE AMOUNT OF RS.5,000/- REPRESENT WR ITE-OFF OF EARNEST MONEY DEPOSITS WHILE MAKING TENDER / BID TO A POTEN TIAL CUSTOMER. WE FIND THAT THESE EXPENSES ARE ROUTINE BUSINESS EXPEN DITURE FOR THE ASSESSEE AND INCURRED TO ENSURE DAY-TO-DAY RUNNING OF ASSESSEES BUSINESS AND THEREFORE, ALLOWABLE. RESULTANTLY, BOT H THESE ADDITIONS STAND DELETED. 4.3 REGARDING COMMISSION ON WARRANTY INCOME FOR RS.51,18,356/-, IT HAS BEEN CONTENDED THAT THE ASSESSEE UNDERTAKES THE WARRANTY OF THE EQUIPMENT SUPPLIED BY THE FOREIGN GROUP COMPANIES. THE PERIOD OF WARRANTY IS USUALLY FROM ONE YEAR TO TWO YEARS AND VARIES FROM CASE TO CASE BASIS. DURING WARRANTY PERIOD, THE ASSESSEE CA RRIES OUT VARIOUS ACTIVITIES LIKE REPLACEMENT OF PARTS, SERVICING OF EQUIPMENT ETC. AND ACCORDINGLY, COMMISSION INCOME RECEIVED AGAINST THE SAME IS ACCRUED OVER THE PERIOD OF WARRANTY BY FOLLOWING THE MATCHING CONCEPT OF INCOME. OUR ATTENTION IS DRAWN TO THE FINANCIAL ACCOUNTS OF THE COMPANY AND DETAILED WORKINGS THEREOF AS MADE BY THE ASSESSEE. THE LD.AR FURTHER CONTENDED THAT THE ASSESSEE IS CONSISTENTLY FOLLOWI NG THE SAME METHOD OF ACCOUNTING OVER THE PAST SEVERAL YEARS AND THE S AME HAS ALSO BEEN ACCEPTED BY THE REVENUE. OUR ATTENTION IS FURTHER D RAWN TO A VITAL FACT THAT THE ASSESSEE, FOLLOWING THE SAME METHOD OF ACCOUNTI NG, HAS ALREADY OFFERED THE SAID INCOME IN SUBSEQUENT ASSESSMENT YE ARS AND HENCE, DOUBLE TAXATION OF THE SAME AMOUNT WAS AGAINST THE PRINCIPLE OF NATURAL JUSTICE AND HENCE, NOT PERMISSIBLE. 4.4 UPON PERUSAL, WE FIND THAT IT IS UNCONTROVERTED FACT THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING FOR RECOGNITION OF COMMISSION INCOME OVER PAST SEVERAL YEARS. A PERUSAL OF ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 7 DETAILED WORKING OF THE SAME AS PLACED ON PAGE NO. 151 REVEALS THAT THE SAID INCOME HAS BEEN APPORTIONED ON THE BASIS OF NU MBER OF EXPIRED AND UNEXPIRED WARRANTY DAYS, WHICH LENDS STRENGTH T O VARIOUS ARGUMENTS OF LD. AR. THEREFORE, WITHOUT DELVING MUCH DEEPER I NTO THE ISSUE, THE IMPUGNED ADDITION STANDS DELETED SUBJECT TO VERIFIC ATION OF THE FACT BY LD. AO THAT THIS IMPUGNED INCOME HAS BEEN OFFERED BY TH E ASSESSEE TO TAX IN SUBSEQUENT YEARS. ACCORDINGLY, THE MATTER IS RES TORED BACK TO THE FILE OF LD. AO FOR FACTUAL VERIFICATION OF THIS FACT. TH IS GROUND OF APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. 4.5 THE LAST ADDITION UNDER DISPUTE IS ADDITION OF RS.35,17,971/- ON ACCOUNT OF PROVISION FOR GRATUITY . AS PER CONTENTION OF LD. AR, THE PROVISION OF GRATUITY LIABILITY REPRESENT ASCERTAIN ED LIABILITY ARRIVED AT BY THE ASSESSEE AND PROVIDED IN THE BOOKS ON THE BASIS OF ACTUARIAL VALUATION UNDERTOOK BY THE ASSESSEE. THE REVENUE, O N THE OTHER HAND, CONTENDS THAT THE SAME REPRESENT MERE PROVISIONS AN D HENCE NOT ALLOWABLE TO THE ASSESSEE. DURING THE COURSE OF HEA RING, IT WAS POINTED OUT THAT THERE WAS LARGE VARIATION IN THE PROVISION OF GRATUITY MADE BY THE ASSESSEE DURING THE IMPUGNED AY VIS--VIS PROVISION MADE IN THE EARLIER YEARS AND IT WAS ALSO DISPROPORTIONATE TO THE INCRE ASE IN SALARY EXPENSES INCURRED BY THE ASSESSEE. THE LD. AR CONTENDED THAT THE SAME WAS ARRIVED AT ON THE BASIS OF REPORT OF ACTUARIAL VALU ATION AND THEREFORE, ALLOWABLE IN TERMS OF RATIO OF DECISION OF HONBLE SUPREME COURT IN BHARAT EARTH MOVERS VS. CIT [245 ITR 428] . 4.6 IT IS SETTLED PROPOSITION THAT DEDUCTION COULD BE ALLOWED TO ASSESSEE ONLY AGAINST ASCERTAINED LIABILITIES AND NOT MERE P ROVISION. THE LD. AR COULD NOT DEMONSTRATE THE WORKING OF ARRIVING AT TH E SAID PROVISION. IT IS ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 8 ALSO NOTED THAT THE ASSESSEE DID NOT PRODUCE ANY EV IDENCE IN THIS REGARD BEFORE ANY OF THE LOWER AUTHORITIES AND THE DOCUMEN TS BEING PRESENTED BEFORE US IN THE FORM OF ACTUARIAL VALUATION REPORT CONSTITUTE ADDITIONAL EVIDENCES. HENCE, WITHOUT DELVING MUCH DEEPER INTO THE ISSUE, WE RESTORE THE SAME TO THE FILE OF LD. AO FOR RE-APPRE CIATION OF ASSESSEES CONTENTION & DOCUMENTARY EVIDENCES AND DECIDE AS PE R LAW. THE ASSESSEE, IN TURN, IS DIRECTED TO SUBSTANTIATE HIS CLAIM IN THIS REGARD BEFORE LD. AO AND ALSO DEMONSTRATE THE CRYSTALLIZAT ION / ACCRUAL OF THE LIABILITY FAILING WHICH LD. AO SHALL BE AT LIBERTY TO DISPOSE-OFF THE SAME ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THIS GRO UND STANDS ALLOWED FOR STATISTICAL PURPOSES. 4.7 RESULTANTLY, THE ASSESSEES APPEAL STANDS PARTL Y ALLOWED IN TERMS OF OUR ABOVE ORDER. CONCLUSION 5. TO SUM UP, ITA NO. 4288/MUM/2011 STANDS DISMISSE D WHEREAS ITA NO. 3550/MUM/2012 STANDS PARTLY ALLOWED IN TERM S OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JANUARY,2018 SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARW AL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER * MUMBAI; DATED : 17.01.2018 SR.PS:- THIRUMALESH ITA.NO.4288/MUM/2011 & 3550/MUM/2012 THERMO FISHER SCIENTIFIC INDIA PRIVATE LIMITED ASSESSMENT YEAR-2006-07 9 ! COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + / THE CIT(A) 4. + / CIT CONCERNED 5. , $&- - ) * / DR, ITAT, MUMBAI 6. . / GUARD FILE ' / BY ORDER, # '$ % (DY./ASSTT. REGISTRAR) * / ITAT, MUMBAI