JOHNSON & JOHNSON P. LTD, MUMBAI V. DCIT LTU, MUMBAI

ITA 4253/MUM/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0915 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 20-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAN R V ORA PRANAY GANDHI
• Assessee Lawyers: ANAND MOHANAZHAR ZAIN
• Keywords: Permanent establishment; Question of law; Difference of opinion; Tax effect
• Section: 271(1)(c); 43B; 143(3); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.3781/MUM/2016(A.Y. 2008-09) DY. COMMISSIONER OF IN COME TAX LARGE TAX PAYER UNIT)-1, WORLD TRADE CENTRE, CENTRE-1, 29 TH FLOOR, CUFFE PARADE, MUMBAI 400 005 ...... APPELLA NT VS. M/S. JOHNSON & JOHNSON LTD. 30, FORJETT STREET, POST BOX NO.9301, MUMBAI 400 036. PAN:AAACJ0866E ..... RESPONDENT ITA NO.4253/MUM/2016(A.Y. 2008-09) M/S. JOHNSON & JOHNSON LTD. 30, FORJETT STREET, POST BOX NO.9301, MUMBAI 400 036. PAN:AAACJ0866E ..... APPELLANT VS. DY. COMMISSIONER OF IN COME TAX LARGE TAX PAYER UNIT)-1, WORLD TRADE CENTRE, CENTRE-1, 29 TH FLOOR, CUFFE PARADE, MUMBAI 400 005 ...... RESPOND ENT REVENUE BY : S/SHRI ANAND MOHAN&AZHAR ZAIN RESPONDENT BY : S/ SHRI RAJAN R. V ORA& PRANAY GANDHI DATE OF HEARING : 02/12/2019 DATE OF PRONOUNCEMENT : 20/12/2019 2 ITA NO.3781/MUM/2016(A.Y. 2008-09) ITA NO.4253/MUM/2016(A.Y. 2008-09) ORDER PER VIKAS AWASTHY, JM: THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (AP PEALS)-1, [IN SHORT THE CIT(A)] DATED 18/03/2016 FOR ASSESSMENT YEAR 2008-09. 2. BRIEF FACTS OF THE CASE AS EMANATING FROM THE RE CORDS ARE: THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING A ND MARKETING OF VARIOUS PHARMACEUTICAL, CONSUMER CARE, HEALTH CA RE AND DIAGNOSTIC PRODUCTS. ASSESSMENT ORDER UNDER SECTION 143(3) R. W.S.144C OF THE INCOME TAX ACT, 1961 [ IN SHORT THE ACT] WAS PASS ED ON 31/10/2012 INTER- ALIA MAKING ADDITIONS/DISALLOWANCES ON FOLLOWING CO UNTS:- (I) DISALLOWANCE OF PROVISION FOR BONUS UNDER SECTION 4 3B OF THE ACT (II) ADDITION ON ACCOUNT OF PROFITS OF OVERSEAS BRANCH A T SRI LANKA. PENALTY UNDER SECTION 271(1)(C) OF THE ACT WERE INI TIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME IN RESPECT OF THE AFORESAID ADDITIONS/DISALLWOANCES. THE ASSESSING OFFICER VID E ORDER DATED 30/09/2014 LEVIED PENALTY OF RS.81,39,619/- UNDER S ECTION 271(1)(C) OF THE ACT R.W EXPLANATION-1 IN RESPECT OF THE ABOVE S AID TWO ADDITIONS. AGGRIEVED BY THE ORDER LEVYING PENALTY UNDER SECTIO N 271(1)(C) OF THE ACT, THE ASSESSEE FILED APPEAL BEFORE CIT(A). THE FIRST APPELLATE AUTHORITY DELETED THE PENALTY LEVIED QUA DISALLOWANCE OF PROV ISION FOR BONUS. WHEREAS, IN RESPECT OF NON-DISCLOSURE OF PROFITS FROM OVERSEAS BRANCH AT SRI LANKA, THE PENALTY LEVIED UNDER SECTION 271(1)( C) OF THE ACT WAS CONFIRMED. HENCE, THE PRESENT APPEALS BY THE REVEN UE AND THE ASSESSEE. 3 ITA NO.3781/MUM/2016(A.Y. 2008-09) ITA NO.4253/MUM/2016(A.Y. 2008-09) ITA NO.3781/MUM/2016(A.Y. 2008-09) 3. THE REVENUE IN ITS APPEAL HAS ASSAILED THE FINDI NG OF CIT(A) IN DELETING THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF PROVISION FOR BONUS CLAIMED UNDER SECTION 43B OF TH E ACT BY THE ASSESSEE. 4. SHRI RAJAN R. VORA APPEARING ON BEHALF OF THE AS SESSEE SUBMITTED AT THE OUTSET THAT SIMILAR DISALLOWANCE WAS MADE IN TH E ASSESSMENT YEAR 2001-02, HOWEVER, THE SAME WAS ALLOWED BY THE TRIBU NAL. THE CIT(A) HAS DELETED THE PENALTY IN RESPECT OF AFORESAID ADDITIO N BY PLACING RELIANCE ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2001-02. 5. PER CONTRA, SHRI ANAND MOHAN REPRESENTING THE DE PARTMENT VEHEMENTLY DEFENDED THE LEVY OF PENALTY UNDER SECTI ON 271(1)(C) OF THE ACT ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR BON US. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE REVEN UE IN APPEAL HAS ASSAILED DELETING OF PENALTY IN RESPECT OF PROVISIO N FOR BONUS. WE FIND THAT THE FIRST APPELLATE AUTHORITY HAS PLACED RELIANCE O N THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 DECIDED ON 28/06/2013, WHEREIN THE PENALTY LEVIED UNDER SECTI ON 271(1)(C) OF THE ACT WAS DELETED ON SIMILAR SET OF FACTS. THE LD.DEPART MENTAL REPRESENTATIVE HAS NOT PLACED ON RECORD ANY MATERIAL TO SHOW ANY C HANGE IN FACTS IN THE ASSESSMENT YEAR UNDER APPEALS OR TO DISTINGUISH THE FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEAR. T HE ORDER OF CIT(A) ON THIS ISSUE IS WELL REASONED, HENCE, WE FIND NO REASON TO INTERFERE WITH THE 4 ITA NO.3781/MUM/2016(A.Y. 2008-09) ITA NO.4253/MUM/2016(A.Y. 2008-09) SAME. ACCORDINGLY THE APPEAL OF THE REVENUE IS DI SMISSED BEING DEVOID OF ANY MERIT. 7. WE FURTHER OBSERVE THAT TAX EFFECT INVOLVED IN T HE PRESENT APPEAL IS LESS THAN THE MONETARY LIMIT PRESCRIBED VIDE CBDT CIRCULAR NO.17/2019 DATED 08/08/2019. THEREFORE, THE APPEAL OF THE REV ENUE IS LIABLE TO BE DISMISSED ON ACCOUNT OF LOW TAX EFFECT AS WELL. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ITA NO.4253/MUM/2016 (A.Y. 2008-09): 9. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST CONFIRMING LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF AD DITION OF PROFITS ATTRIBUTABLE TO SRI LANKA BRANCH OF THE ASSESSEE COMPANY. 10. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSE SSEE SUBMITTED THAT THE ASSESSEE IN COMPUTATION OF INCOME HAD DISCLOSED THE PROFITS EARNED FROM OVERSEAS BRANCH AT SRI LANKA. TO SUPPORT HIS CONTEN TION HE REFERRED TO COMPUTATION OF INCOME AT PAGE-1 OF THE PAPER BOOK A ND POINTED THAT IN THE COMPUTATION OF INCOME THE ASSESSEE HAS REDUCED PROF IT OF SRI LANKA BRANCH FROM THE PROFITS BEFORE TAX AS PER P&L ACCOUNT FOR THE FINANCIAL YEAR ENDED 31/03/2008. THE LD. AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE WAS UNDER BONAFIDE BELI EF THAT PROFITS OF THE OVERSEAS BRANCH ARE TAXABLE IN THE HOST COUNTRY AND HAS OFFERED THE SAME TO TAX IN THE COUNTRY WHERE THE BRANCH IS ESTABLISHED I.E. SRI LANKA. THE ASSESSEE HAS PERMANENT ESTABLISH IN THE SAID COUNTRY. THE LD. A UTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT A PERUSAL OF DOCUMENTS ON RECORD CLEARLY ESTABLISHES THAT IT IS NOT A CASE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IT IS A CASE OF DIFFERENCE IN OPINION. UNDER SUCH CIRCUMSTANCES PROVISIONS OF SECTION 271(1)(C) OF TH E ACT ARE NOT ATTRACTED. IN 5 ITA NO.3781/MUM/2016(A.Y. 2008-09) ITA NO.4253/MUM/2016(A.Y. 2008-09) SUPPORT OF HIS CONTENTIONS LD. AUTHORIZED REPRESENT ATIVE OF THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS: (I) CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. 323 I TR 158(SC) (II) DCIT VS. INDIAN OVERSEAS BANK IN ITA NO.1990 & 1991/MAD/2011 A.Y 2006-07 AND 2007-08 DECIDED ON 14/2/2013. 10.1 THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSES SEE FURTHER SUBMITTED THAT THE ISSUE WHETHER PROFITS OF FOREIGN BRANCH ARE LI ABLE TO BE TAXED IN INDIA IS A DEBATABLE ISSUE. THE MUMBAI BENCH OF TRIBUNAL IN T HE CASE OF DCIT VS. ESSAR OIL LTD. FOR ASSESSMENT YEAR 2003-04 REPORTED AS 13 TA XMANN.COM 151 HAS HELD THAT THE PROFITS OF OVERSEAS BRANCH ARE NOT TAXABL E IN INDIA. THE CO-ORDINATE BENCH IN THE CASE OF SAME ASSESSEE I.E., ESSAR OIL LTD. FOR ASSESSMENT YEARS 2004-05 AND 2005-06 REPORTED AS 42 TAXMANN.COM 21 ( MUM-TRIB) HAS TAKEN A CONTRARY VIEW AND HAS HELD THAT THE PROFITS OF OVER SEAS BRANCH ARE TAXABLE IN INDIA. THE ASSESSEE THEREIN CARRIED THE ISSUE IN A PPEAL BEFORE THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.227 OF 20 14 TITLED ESSAR OIL LTD. VS. ADDL.CIT. THE HONBLE COURT HAS ADMITTED THE SUBS TANTIAL QUESTION OF LAW I.E. WHETHER THE PROFITS EARNED BY OVERSEAS BRANCH ARE R EQUIRED TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE/APPELLANT (ESSAR OIL LTD.) IN INDIA. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT WHERE THE QUESTION OF LAW HAS BEEN ADMITTED BY THE HONBLE HIGH COURT IT BECOME A DEBATABLE ISSUE AND HENCE NO PENALTY IS LEVIABLE ON SUCH ISSUES. T O BUTTRESS HIS SUBMISSIONS, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE P LACED RELIANCE ON THE FOLLOWING DECISIONS: (I) CIT VS. NAYAN BUILDERS & DEVELOPERS, 368 ITR 722(B OM) (II) CIT VS. M/S. ADVAITA ESTATE DEVELOPMENT PVT. LTD. , INCOME TAX APPEAL NO.1498 OF 2014 DECIDED ON 17/02/2017. 6 ITA NO.3781/MUM/2016(A.Y. 2008-09) ITA NO.4253/MUM/2016(A.Y. 2008-09) 11. ON THE OTHER HAND, THE LD.DEPARTMENTAL REPRESEN TATIVE VEHEMENTLY DEFENDED THE IMPUGNED ORDER IN CONFIRMING PENALTY L EVIED UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF NON-DISCLOSURE O F PROFITS OF SRI LANKA BRANCH BY THE ASSESSEE. THE LD.DEPARTMENTAL REPRES ENTATIVE SUBMITTED THAT IT IS A CLEAR CASE OF FURNISHING INACCURATE PA RTICULARS OF INCOME BY THE ASSESSEE. 12. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SID ES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE ONLY ISSUE IN APPEAL BY THE ASSESSEE IS WHETHER ADDITION ON ACCOUNT OF PROFIT S OF SRI LANKA BRANCH IS CONSEQUENT TO FURNISHING INACCURATE PARTICULARS OF INCOME AND HENCE, TRIGGERS PENAL PROVISIONS UNDER SECTION 271(1)(C) O F THE ACT. A PERUSAL OF COMPUTATION OF INCOME FOR THE ASSESSMENT YEAR 2008- 09 AT PAGE-1 OF PAPER BOOK REVEAL THAT THE ASSESSEE HAS DISCLOSED T OTAL PROFITS BEFORE TAX AS PER PROFITS AND LOSS ACCOUNTS FOR THE YEAR ENDED 31/03/2008. THIS PROFIT INCLUDES PROFIT FROM SRI LANKA BRANCH AS WEL L. THEREAFTER, THE ASSESSEE HAS REDUCED THE PROFITS & LOSSES OF THE OV ERSEAS BRANCH AT SRI LANKA AND BANGLADESH, RESPECTIVELY. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE WAS UNDER BONA-FIDE BELIEF THAT T HE PROFITS OF THE OVERSEAS BRANCHES ARE TAXABLE IN THE HOST COUNTRY A S THE ASSESSEE IS HAVING PERMANENT ESTABLISHMENT IN THE SAID COUNTRY. THIS BELIEF OF THE ASSESSEE IS FURTHER SUBSTANTIATED BY THE FACT THAT THE ASSESSEE HAS OFFERED INCOME FROM SAID OVERSEAS BRANCH TO TAX IN THE HOST COUNTRY. THE DRP HAS GIVEN BENEFIT OF THE TAX CREDIT TO THE ASSESSEE FOR THE TAXES PAID OVERSEAS. 13. THE SECOND CONTENTION OF THE ASSESSEE IS THAT T HE ISSUE WHETHER THE PROFITS OF FOREIGN BRANCH ARE LIABLE TO BE TAXED IN INDIA, IS DEBATABLE. WE FIND THAT IN THE CASE OF DCIT VS. ESSAR OIL LTD.(SU PRA), THE TRIBUNAL HAS HELD 7 ITA NO.3781/MUM/2016(A.Y. 2008-09) ITA NO.4253/MUM/2016(A.Y. 2008-09) THAT INCOME FROM OVERSEAS BRANCH IS TAXABLE IN THE COUNTRY WHERE BRANCH IS ESTABLISHED. IN THE IMMEDIATELY SUCCEEDING ASSES SMENT YEAR, THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF VERY S AME ASSESSEE I.E. ESSAR OIL LTD. VS. ADDL. CIT (SUPRA) HAS HELD THAT THE PR OFITS OF OVERSEAS BRANCH ARE TAXABLE IN INDIA. THESE TWO DIVERGENT VIEWS BY TWO DIFFERENT BENCHES OF THE TRIBUNAL HAS MADE THE ISSUE DEBATABLE. THE MATTER HAS TRAVELLED TO THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.227 OF 2014(SUPRA). THE HONBLE BOMBAY HIGH COURT HAS ADMI TTED SUBSTANTIAL QUESTION OF LAW ON THE ISSUE OF PLACE OF TAXABILITY OF PROFITS EARNED BY THE OVERSEAS. IT IS A TRAIT LAW THAT WHERE THE ISSUE I S DEBATABLE NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS LEVIABLE. WE FURTHER OBSERVE THAT THE ASSESSEE IN COMPUTATION OF INCOME HAS ALREADY DISCL OSED PROFITS OF SRI LANKA BRANCH THOUGH, THE SAME WERE SUBSEQUENTLY RED UCED FROM THE TOTAL TAXABLE INCOME BY THE ASSESSEE. MERELY FOR THE REA SON THAT THE CLAIM MADE BY THE ASSESSEE UNDER BONA-FIDE BELIEF IS NOT ACCEPTED BY THE DEPARTMENT PENALTY UNDER SECTION 271(1)(C) OF THE A CT CANNOT BE LEVIED. OUR THIS VIEW IS FORTIFIED BY THE DECISION RENDERED IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS LTD. (SUPRA). 14. THUS, FOR THE REASONS GIVEN ABOVE, WE FIND MERI T IN THE CONTENTIONS RAISED BY ASSESSEE. IN OUR CONSIDERED VIEW IT IS N OT A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. CONSEQ UENTLY, THE PENALTY LEVIED IN RESPECT OF NON-DISCLOSURE OF PROFITS OF S RI LANKA BRANCH IS DELETED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 8 ITA NO.3781/MUM/2016(A.Y. 2008-09) ITA NO.4253/MUM/2016(A.Y. 2008-09) 16. TO SUM-UP, THE APPEAL OF REVENUE IS DISMISSED A ND THAT OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY THE 20 TH DAY OF DECEMBER, 2019. SD/- SD/- (R.C.SHARMA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 20/12/2019 VM , SR. PS(O/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