DCIT 2 (3), MUMBAI V. TECH MAHINDRA P.LTD, MUMBAI

ITA 3849/MUM/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7902 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2007-2008
• Appeal Filed On: 29-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A MOHAN
• Assessee Lawyers: J D MISTRI SENIOR
• Keywords: Transfer pricing; Tangible material; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 10B; 144C; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3849/MUM/2014 ASSESSMENT YEAR: 2007 - 05 DCIT - 2(3), R OOM NO. 552, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S TECH MAHINDRA PVT. LTD., GATEWAY BUILDING, APOLLO BUNDER, MUMBAI - 400001 PAN NO. AAACM3484F APPELLANT RESPONDENT C.O. NO. 11/MUM/2015 (ITA NO. 3849/MUM/2014) ASSESSMENT YEAR: 2007 - 05 TECH MAHINDRA LTD., SHARADACENTRA OFF KARVE RD, ERANDWANE, PUNE - 411004 VS. DCIT - 2(3), R. NO. 552, 5TH FLOOR, AAYAKARBHAVAN, M.K. ROAD, MUMBAI - 400020. PAN NO.AAACM3484F APPELLANT RESPONDENT REVENUE BY : MR. A. MOHAN, CIT - DR ASSESSEE BY : MR. J . D. MISTRI, SENIOR ADVOCATE DATE OF HEARING : 15/01/2020 DATE OF PRONOUNCEMENT : 22/01/2020 ORDER PER N.K. PRADHAN, A.M. THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 6 [IN M/S TECH MAHINDRA PVT. LTD. ITA NO. 3849/MUM/2014 & CO. NO. 11/MUM/2015 2 SHORT CIT(A)], MUMBAI AND ARISE OUT OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1 961, (THE ACT). ITA NO. 3849/MUM/2014 (AY : 2007 - 05) 2. THE GROUNDS OF APPEAL FILED BY THE R EVENUE READ AS UNDER: 1 . THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2 . O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ANNULLING RE - ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 147 OF THE ACT, WITHOUT APPRECIATING THAT MERE SUBMISSION OF MATERIAL BEFORE THE ASSESSING OFFICER IN ITSELF CANNOT ESTABLISH THAT THE ASSESSEE HAD DISCLOSED ALL MATERIAL FACTS BEFOR E THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSM E NT AND HENCE, THE SA ME CANNOT CONSTITUTE CHANGE OF OPINION. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2007 - 08 ON 29.10.2007 DE CLARING TOTAL INCOME OF RS.23,05,46,624/ - AFTER CLAIMING DEDUCTION U/S 10A OF THE ACT OF RS.658,69,93,208/ - . THE ASSESSING OFFICER (AO) PASSED AN ORDER DATED 18.02.2011 U/S 143(3) R.W.S. 144C(3) BY MAKING VARIOUS ADJUSTMENTS (INCLUDING ADJUSTMENTS TO THE C OMPUTATION OF DEDUCTION U/S 10A OF THE ACT) TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, WITH REGARD TO THE UPFRONT DISCOUNT OF RS.524,93,80,079/ - PAID TO THE BRITISH TELECOMMUNICATIONS, THE AO RECORDED IN THE ASSESSMENT ORDER THAT THOUGH THE DETERMINATIO N OF ARMS LENGTH PRICE (ALP) AS NIL BY THE TRANSFER PRICING OFFICER (TPO) IS ACCEPTED, HOWEVER, NO ADJUSTMENT WAS MADE IN RESPECT OF UPFRONT DISCOUNT AS THE ASSESSEE HAS NOT CLAIMED THE SAME AS AN EXPENDITURE AT ALL IN ITS RETURN OF INCOME. FURTHER, THE A O VERIFIED THE WORKING OF THE DEDUCTION CLAIMED BY THE M/S TECH MAHINDRA PVT. LTD. ITA NO. 3849/MUM/2014 & CO. NO. 11/MUM/2015 3 ASSESSEE U/S 10A AS ALSO THE CLARIFICATIONS/EXPLANATIONS FURNISHED BY THE ASSESSEE AND AFTER MAKING CERTAIN ADJUSTMENTS I.E. REDUCTION OF EXPENSES INCURRED IN FOREIGN EXCHANGE, TELECOMMUNICATION CHARGE S AND UNREALIZED SALE PROCEEDS FROM THE EXPORT TURNOVER, HE GRANTED DEDUCTION U/S 10A AT RS.578,69,80,911/ - AS AGAINST THE CLAIM OF RS.658,69,93,208/ - MADE BY THE ASSESSEE IN THE RETURN OF INCOME. SUBSEQUENTLY, THE AO INITIATED RE - ASSESSMENT PROCEEDINGS BY ISSUING NOTICE U/S 148 DATED 29.03.2012 BY RECORDING THE FOLLOWING REASONS : A) IN THIS CASE, MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) WHO PASSED THE ORDER UNDER SECTION 92CA(3) DATED 27 OCTOBER 2010. ONE OF THE ADJUSTMENT SUGGESTED B Y THE TPO WAS PAYMENT OF UPFRONT DISCOUNT OF RS.524,93,78,079/ - . HOWEVER, IT SEEMS FROM THE RECORDS THAT THIS PARTICULAR ADJUSTMENT WAS NOT MADE. AS PER THE PROVISIONS OF SECTION 92CA(4), AO WAS BOUND BY THE ORDER OF TPO. THEREFORE THE INCOME OF R.5,42,93, 78,079/ - I.E. ADJUSTMENT AS MADE BY TPO HAS ESCAPED ASSESSMENT. B) AS PER THE PROVISIONS OF SECTION 10A, A DEDUCTION OF PROFIT AND GAINS WHICH ARE DERIVED BY AN UNDERTAKING FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE IS ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. FURTHER AS PER PROVISIONS OF SECTION 92C(4) OF THE ACT, IF TOTAL INCOME HAVING REGARD TO ARM'S LENGTH PRICE IS ENHANCED, NO DEDUCTION UNDER SECTION 10A, 10B OR CHAPTER VI - A OF THE ACT SHALL BE ALLOWED IN RESPECT OF THE INCREASED QUA NTUM OF THE INCOME. THE ASSESSEE HAD MADE PAYMENT OF UPFRONT DISCOUNT OF RS.524,93,78,079/ - TO BT AND DEBITED PROFIT AND LOSS ACCOUNT WITH THE SUM. THE TPO, VIDE HIS ORDER DATED 27 OCTOBER 2010, HAD MADE, INTER - ALIA, ADJUSTMENT OF RS.524,93,78,079/ - ON ACC OUNT OF UPFRONT PAYMENT. IT IS SEE N THAT THE DEDUCTION UNDER SECTION 10A OF THE ACT HAS BEEN ALLOWED ON PAYMENT OF UPFRONT M/S TECH MAHINDRA PVT. LTD. ITA NO. 3849/MUM/2014 & CO. NO. 11/MUM/2015 4 DISCOUNT OF RS.524,93,78,079/ - . IT HAS RESULTED IN EXCESS DEDUCTION UNDER SECTION 10A OF THE ACT OF RS.457,36,49,218/ - . THEREFORE THE RE IS UNDER ASSESSMENT RESULTING IN ESCAPEMENT OF INCOME. (2) IT HAS BEEN FURTHER SEEN FROM THE RECORDS THAT THE PROFIT INCLUDED A SUM OF RS.6,99,92,839/ - WHICH WERE NOT DERIVED FROM EXPORT OF ARTICLE, THING OR COMPUTER SOFTWARE. THE DETAILS ARE: INTEREST ON DEPOSITS WITH BANKS RS.6,34,43,558 INTEREST ON OTHERS TOTAL RS.65,49,281 TOTAL RS.6,99,92,839 AS THE INCOME SHOWN ABOVE WERE NOT DERIVED FROM EXPORT OF ARTICLES, THINGS OR COMPUTER SOFTWARE, NO DEDUCTION ON THESE INCOMES WAS ALLOWED UNDER SECTION 10A OF THE ACT. THEREFORE THERE IS UNDER ASSESSMENT RESULTING IN ESCAPEMENT OF INCOME. 4. IN APPEAL, THE LD. CIT(A) VIDE ORDER DATED 17.02.2014 OBSERVED THAT (I) AS PER THE COMPUTATION OF TOTAL INCOME, THE PAYMENT OF UPFRONT DISCOUNT WAS NOT CLAIMED BY THE A SSESSEE AS AN EXPENSE WHILE COMPUTING TAXABLE INCOME, (II) THE AO, AFTER CONSIDERING THE TP ORDER AND THE SUBMISSIONS OF THE ASSESSEE DATED 16.11.2010 AND AFTER VERIFYING THE RELEVANT FACTS, HAS SPECIFICALLY RECORDED IN THE ASSESSMENT ORDER THAT NO ADJUSTM ENT HAS BEEN MADE WITH RESPECT TO TP ADJUSTMENT ON PAYMENT OF UPFRONT DISCOUNT SINCE THE SAME WAS NOT CLAIMED AS AN EXPENSE FOR TAX PURPOSE BY THE ASSESSEE AND GIVING EFFECT TO THE TP ADJUSTMENT WOULD ENTAIL DOUBLE DISALLOWANCE, (III) EVEN THE RE - ASSESSMEN T ORDER, THE AO HAS NOT GIVEN EFFECT TO THE TPOS ORDER WITH RESPECT TO UPFRONT DISCOUNT, (IV) SECTION 10A DEDUCTION HAS BEEN CLAIMED BY THE ASSESSEE ON PROFITS BEFORE EXCEPTIONAL ITEMS, FURTHER EXCEPTIONAL ITEMS ARE THE SUBJECT UPFRONT DISCOUNT, (V) THE A O HAS CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AND ALSO APPLIED HIS MIND TO THE COMPUTATION OF DEDUCTION AND AFTER CERTAIN ADJUSTMENTS (I.E. M/S TECH MAHINDRA PVT. LTD. ITA NO. 3849/MUM/2014 & CO. NO. 11/MUM/2015 5 REDUCTION OF EXPENSES INCURRED IN FOREIGN EXCHANGE, TELECOMMUNI CATION CHARGES AND UNREALIZED SALE PROCEEDS FROM EXPORT TURNOVER) REDUCE D THE DEDUCTION U/S 10A TO RS.578,69,80,911/ - AS AGAINST THE CLAIM OF RS.658,69,93,208/ - MADE BY THE ASSESSEE IN THE RETURN OF INCOME, (VI) THE AO ACCEPTED THE ASSESSEES CONTENTION TH AT NO EFFECT COULD BE GIVEN TO THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY THE TPO ON THE UPFRONT DISCOUNT, SINCE IT IS NOT CLAIMED AS DEDUCTION. ON THE BASIS OF THE ABOVE OBSERVATIONS, THE LD. CIT(A) HELD THAT THE RE - OPENING OF ASSESSMENT ON THE BASIS OF DEDUCTION U/S 10A HAS BEEN DONE BY THE AO MERELY ON CHANGE OF OPINION. FURTHER STATING THAT THERE WAS NO NEW TANGIBLE MATERIAL BASED ON WHICH THE AO INITIATED THE RE - ASSESSMENT PROCEEDINGS, THE LD. CIT(A) ANNULLED THE ASSESSMENT ORDER PASSED U/S 147/143 (3) OF THE ACT. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELIES ON THE ORDER OF THE AO, WHEREAS THE LD. COUNSEL FOR THE ASSESSEE SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE, WE FIND THAT THE PAYMENT OF UPFRONT DISCOUNT WAS NOT CLAIMED BY THE ASSESSEE AS AN EXPENSE WHILE COMPUTING THE TAXABLE INCOME; THE AO AFTER CONSIDERING T HE ORDER OF THE TPO AND SUBMISSIONS OF THE ASSESSEE DID NOT MAKE ANY ADJUSTMENT IN RESPECT OF UPFRONT DISCOUNT ON THE REASON THAT THE SAME WAS NOT CLAIMED AS AN EXPENSE FOR TAX PURPOSE BY THE ASSESSEE ; EVEN IN THE RE - ASSESSMENT ORDER THE AO HAS NOT GIVEN EFFECT TO THE TPOS ORDER WITH RESPECT TO UPFRONT DISCOUNT. FURTHER, WE FIND THAT THE AO, M/S TECH MAHINDRA PVT. LTD. ITA NO. 3849/MUM/2014 & CO. NO. 11/MUM/2015 6 AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND AFTER CERTAIN ADJUSTMENTS (I.E. REDUCTION OF EXPENSES INCURRED IN FOREIGN EXCHANGE, TELECOMMUNICATION CHARG ES AND UNREALIZED SALE PROCEEDS FROM THE EXPORT TURNOVER) REDUCED THE DEDUCTION U/S 10A TO RS.578,69,80,911/ - AS AGAINST THE CLAIM OF RS.658,69,93,208/ - MADE BY THE ASSESSEE IN THE RETURN OF INCOME. IN VIEW OF THE ABOVE FACTUAL MATRIX, WE UPHOLD THE ORDE R OF THE LD. CIT(A) ON THE ABOVE MATTER. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 11/MUM/2015 (ITA NO. 3849/MUM/2014) AY : 2007 - 05 8. THERE HAS BEEN A DELAY OF 16 DAYS IN FILING THE CROSS OBJECTION BY THE ASSESSEE. HAVING GONE THROUGH THE AFFIDAVIT DATED 09.01.2015, WE ARE CONVINCED THAT THERE WAS GENUINE REASON ON THE PART OF THE ASSESSEE IN FILING THE APPEAL LATE BY 16 DAYS. WE CONDONE THE DELAY. 9. THE CROSS OBJECTION FILED BY THE ASSESSEE READ AS UNDER : 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS RIGHTLY HELD THAT THE REASSESSMENT PROCEEDINGS ARE BAD IN LAW SINCE THE SAME WERE INITIATED PURSUANT TO CHANGE OF OPINION AND WITHOUT ANY NEW TANGIBLE MATERIAL ON RECORD. 2 . WITH OUT PREJUDICE TO THE ABOVE, IN CASE IT IS DECIDED THAT REASSESSMENT PROCEEDINGS ARE VALID IN LAW, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DCIT ERRED IN PASSING THE FINAL ASSESSMENT ORDER U/S 143 R.W.S. 147 OF THE ACT , WITHOUT COMP LYING WITH THE PROVISIONS OF SECTION 144C OF THE ACT. 3 . ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DCIT ERRED IN DENYING THE DEDUCTION UNDER SECTION 10A OF THE ACT OF RS.457,36,49,218 ON THE M/S TECH MAHINDRA PVT. LTD. ITA NO. 3849/MUM/2014 & CO. NO. 11/MUM/2015 7 TRANSFER PRICING ADJUSTMENT OF RS.524,93,78,0 79 SUGGESTED BY THE TRANSFER PRICING OFFICER ('TPO'), IGNORING THE FACT THAT THE SAID PAYMENT WAS SUO - MOT U DISALLOWED BY THE APPELLANT IN ITS RETURN OF INCOME, PURSUANT TO WHICH THE DCIT DID NOT GIVE EFFECT TO THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY T HE TPO. 4 . ON THE FACT AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, THE TPO ERRED IN DETERMINING AND THE ASSESSING OFFICER ERRED IN ACCEPTING THAT THE UPFRONT DISCOUNT PAYMENT TO BRITISH TELECOMMUNICATION OF RS.524,93,78,079 DOES NOT MEET THE CRITERIA OF ARM'S LENGTH PRICING. 10 . SINCE WE HAVE DISMISSED THE APPEAL FILED BY THE REVENUE, THE ABOVE CROSS OBJECTION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS. 1 1 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 22/01/2020 SD/ - SD/ - ( VIKAS AWASTHY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 22/01/2020 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI