EXIM TRADE LINKS (i) P. LTD, MUMBAI V. ACIT 6(2), MUMBAI

ITA 4266/MUM/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3609 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 14-01-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 13-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Keywords: Opportunity of being heard; Principle of natural justice; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , BEFORE SHRI C.N. PRASAD , JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO 4266 /MUM/20 09 ( / ASSESSMENT YEAR: 200 2 - 03 ) M/S. EXIM TRADE LINKS (I) P VT LTD., 31 - 33, NISHANPADA ROAD, DONGRI, MUMBAI - 40 0 00 9 . / VS. ASSTT. COMMISSIONER OF INCOME TAX, - 6(2), MUMBAI. ./ ./ PAN :AAACE 8448B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI NISHIT GANDHI / RESPONDENT BY : SHRI LOVE KUMAR / DATE OF HEARING : 2 0/0 1 /201 6 / DATE OF PRONOUNCEMEN T : 08/ 03/2016 / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE ASSESSEE IS DIREC TED AGAINST THE OR DER DATED 2.4.2009 OF COMMISSIONER OF INCOME TAX (APPEALS) - VI , MUMBAI (HEREINAFTER CALLED AS THE C I T (A)) FOR ASSESSMENT YEAR 200 2 - 03 . THE AS SESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: 1.1 THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - VI, MUMBAI ['THE CIT (A)'] ERRED IN CONFIRMING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 6 (2), MUMBAI, ['THE A.O.'] W HEREBY THE A.O. PASSED THE ORDER U / S. 143 (3) R.W.S. 147 OF THE INCOME - TAX ACT, 1961 ('THE ACT') WITHOUT GIVING SUFFICIENT, PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 2 ITA NO.4266/MUM/2009 1.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF TH E CASE, AND IN LAW, THE ASSESSMENT ORDER BE HELD AS BAD AND ILLEGAL ALSO ON THE GROUND THAT THE SAME IS BASED ON THE MATERIALS THAT WERE NOT AT ALL CONFRONTED TO THE APPELLANT, IN SPITE OF SPECIFIC REQUEST FROM THE APPELLANT IN THAT REGARD . 1.3 IT IS SUB MITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE ASSESSMENT ORDER BE HELD AS BAD AND ILLEGAL, HAVING FRAMED IN BREACH OF THE PRINCIPLES OF NATURAL JUSTICE AND ALSO WITHOUT APPLICATION OF MIND. 2. WITHOUT PREJUDICE TO THE ABOVE 2.1 THE ID. CIT (A) ERRED IN CONFIRMING THE LEGALITY OF ACTION OF THE A.O. IN INITIATING, AND COMPLETING THE REASSESSMENT IN CASE OF THE APPELLANT U/S 147 OF THE ACT. 2.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN LAW , THE REASSESSMENT WAS BAD, ILLEGAL AND VOID AS MANDATORY PRECONDITIONS FOR INITIATING REASSESSMENT PROCEEDINGS, AS WELL AS COMPLETION THEREOF, WERE NOT COMPLIED WITH. 2.3 IT IS PRAYED THAT THE REASSESSMENT BEING ANNULLED AND BE HELD AS NULL AND VOID WITHOUT FURTHER PREJUDICE TO THE ABOVE 3.1 THE ID. CIT (A) ERRED IN CONFIRMING THE ADDITION / DISALLOWANCE MADE BY THE AO ON ACCOUNT OF THE FOLLOWING ITEMS: A ) INLAND TRANSPORTATION FEES (ITF) RS.14,29,604/ - B ) AFTER SALES AND SERVICES FEES (AS SF) RS.86,64,762/ - TOTAL RS.1,00,94,366 3.2 WHILE DOING SO, THE ID. CIT (A) ERRED IN: ( I ) BASING HIS ACTION PURELY ON SURMISES, SUSPICION AND CONJECTURES; ( II ) TAKING INTO ACCOUNT IMPERMISSIBLE, I RRELEVANT AND EXTRANEOUS CONSIDERATIONS AND MATERIALS; AND III) IGNORING RELEVANT MATERIAL AND CONSIDERATIONS. 3 ITA NO.4266/MUM/2009 3.3 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN LAW, NO SUCH ADDITION / DISALLOWANCE WAS CALLED FOR. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.10.2002 DECLARING TOTAL INCOME OF RS.65,71,260/ - . THE AO RECEIVED AN INFORMATION FROM THE CBDT ON THE BASIS OF VOLCKER COMMITTEE APPOINTED BY THE UNITED NATIONS THAT TH E ASSESSEE COMPANY MADE ILLEGAL PAYMENT IN THE SHAPE OF ASFF(AFTER SALES SERVICE FEE) OF 177593US$ EQUIVALENT TO RS. 86,64,762/ - AND ITF ( INLAND TRANSPORTATION FEE) OF 84100 US$ EQUIVALENT TO RS . 41,03,239/ - . AS MATTER OF FACT THE ASSESSEE HAD NOT INCURRED AND PAID ANY ASFF AT ALL WHEREAS PAID TRANSPORTATION CHARGES OVERSEAS RS. 14,26,604/ - IN JORDAN BUT NOT INLAND TRANSPORTATION FEE AS INFORMED TO AO BY THE CBDT. THE AO AFTER RECORDING REASONS U/S 148(2) OF THE ACT ISSUED NOTICE U/S 148 ON 04.08.2006. AC CORDIN G LY THE AO FRAMED THE ASSESSMENT U/S 143(3)/147 OF THE ACT BY MAKING TWO ADDITIONS NAMELY ASSF RS. 86,64,762/ - AND INLAND TRANSPORTATION CHARGES RS. 14,29,604/ - WHICH WAS UPHELD BY THE CIT(A) BY HOLDING THAT THE AO WAS JUSTIFIED IN MAKING THE ADDITI ONS BY DISALLOWING INLAND TRANSPORTATION CHARGES AND ASSF AS THESE AMOUNT WERE ACTUALLY PAID TO IRAQI AUTHORITIES EITHER DIRECTLY OR THROUGH AN AGENT FOR PROCURING THE CONTRACT IN IRAQ AND FURTHER H ELD THAT VOLKAR COMMITTEE REPORT COULD NOT DOUBTED OTHERWI SE THE COMMITTEE WOULD NOT HAVE REPORTED THE PAYMENTS. 3. AT THE OUTSET , THE LD AR FOR THE ASSESSEE SUBMITTED THAT THE GROUND NO 1 IS IN SUPPORT OF GROUND NO 2 AND 3.THE FIRST ISSUE RAISED BY THE AR IS THAT THE PROCEEDINGS INITIATED U/S 147 R.W.S. 148 OF THE ACT WERE BAD IN LAW BECAUSE THE REASONS AS RECORDED U/S 148 ( 2) FOR ISSUING NOTICE WAS BASED ON INCORRECT FACTS AND IN CONSEQUENCE THE WHOLE PROCEEDINGS BECAME INVALID AS THE VERY FOUNDATION OF INITIATION WAS WRONG. HE DREW OUR 4 ITA NO.4266/MUM/2009 ATTENTION TO PARA 2 OF THE ASSESSMENT ORDER. T HE ASSESSMENT WAS RE - OPENED ON TWO REASONS NAMELY THAT THE ASSESSEE PAID 177593US$ AS ASSF(AFTER SALES SERVICE FEE) AND INLAND TRANSPORTATION FEE 84100US$ TO THE IRAQI GOVERNMENT UNDER OIL FOR FOOD PROGRAMME. IT WAS ARGUED THAT THE ASSESSEE HAD NEVER PAID ANY ASSF TO THE IRAQI GOVERNMENT AND NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT . SECONDLY INLAND TRANSPORTATION FEE 84100US$ WERE NEVER PAID AND INCURRED AND IT WAS JUST A SUSPICION OF THE AO WHEREAS THE ASSESSEE HAS INCURRE D, PAID AND CHARGED RS. 14,29,604/ - AS TRANSPORTATION CHARGES OVERSEAS WHICH WERE PAID IN JORDAN AND NOT INLAND TRANSPORTATION FEE. THE LD COUNSEL SUBMITTED BEFORE US THAT SINCE THE VERY BASIS OF INITIATING THE REASSESSMENT PROCEEDINGS WAS ON WRONG AS ON THE INCORRECT FACTS AND THE INFORMATION SUPPLIED BY THE CBDT WERE USED TO RE - OPEN THE ASSESSMENT WITHOUT APPLICATION OF MIND BY THE AO MECHANICALLY AND THEREFORE REQUESTED THAT CONSEQUENT ORDER OF ASSESSMENT WAS ALSO BAD IN LAW. BESIDES THE AR ARGUED THA T THE REASONS WERE NOT SUPPLIED AND WHATEVER OBJECTIONS THE ASSESSEE FILED AGAINST THE RE - OPENING PROCEEDING WERE NOT DISPOSED OFF. ON MERIT THE LD COUNSEL SUBMITTED BEFORE US THAT NO ASFF WAS CHARGED TO PROFIT AND LOSS ACCOUNT AND THEREFORE NO QUESTION O F DISALLOWANCE AND THE TRANSPORTATION CHARGES WERE INCURRED OUT OF GENUINE BUSINESS NEEDS AND WERE PAID IN JORDAN NOT TO THE GOVT . OF IRAQ. ULTIMATELY THE LD COUNSEL SUBMITTED THAT THE RE - OPENING WAS NOT COVERED BY THE PROVISO TO SECTION 147 AND THUS CASE OF THE ASSESSEE WAS WRONGLY RE - OPENED. 4. PER CONTRA THE LD DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 5 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORDS AND ORDER S OF AUTHORITIES BELOW. WE FIND THAT THE CBDT ON THE BASIS OF VOL C KAR COMMITTEE REPORT SENT A MEMORANDUM TO THE AO INTIMATING 5 ITA NO.4266/MUM/2009 THE LIST OF COMPANIES INVOLVED IN THE PAYING KICKBACKS TO IRAQI GOV ERNMENT DURING SUPPLIES MADE UNDER OIL FOR FOOD PROGRAMME AND THE AO RECORDED REASONS U/S 148 ( 2) OF THE ACT FOR RE - OPENING THE ASSESSMENT WHICH ARE EXTRACTED BELOW: - AS PER OFFICE MEMORANDUM OF CBDT F.NO.414/117/2005 - IT(INV) DATED 18.11.2005, THE ASSESSEE COMPANY HAD EXECUTED TWO CONTRACTS WITH GOVERNMENT OF IRAQ UNDER THE OIL FOR FOOD PROGRAMME.IN THE PROCESS O F EXECUTING THE CONTRACT , KICKBACKS IN THE FORM OF INLAND TRANSPORTATION FEE AND AFTER SALES SERVICES FEE WERE PAID BY THE COMPANY. ASSF WHICH WERE GENERALLY 10% KICKBACK REQUIREMENT ON HUMANITARIAN CONTRACT WAS PROVIDED IN THE CONTRACT AS A BASIS TO INFL ATE THE PRICES. THE LIST OF INDIAN COMPANIES RECEIVED ALONGWITH THE AFORESAID MEMORANDUM OF CBDT PROVIDE FOLLOWING INFORMATION WHEREIN ILLEGAL PAYMENTS WERE MADE TO THE GOVERNMENT OF IRAQ BY INFLATING THE COST OF GOODS SUPPLIED AS PER THE CONTRACT. CONTRACT FEE CONTRACT DISBURSED LEVIED ASSF PAID ASSF INLAND TRANSPORTATION 1956683 USD 2236233 US$ 198471 US$ 177593 US$ 84100US$ IT IS ALSO APPARENT FROM NOTE 9 OF THE ACCOUNTS THAT THE ASSESSEE HAD FOLLOWING FOREIGN EXCHANGE EARNINGS IN THE RELE VANT ASSESSMENT YEARS: - AY FOREIGN EXH. EARNINGS 2002 - 03 9,10,88,263 2003 - 04 85,50,829 2004 - 05 14,92,798 FROM THE ABOVE IT IS APPARENT THAT THE ASSESSEE COMPANY MADE ILLEGAL PAYMENT IN THE SHAPE OF ASSF AND INLAND TRANSPORTAT ION FEE , CONTRACT FEE ETC BY INFLATING THE COST OF GOODS SUPPLIED TO THE GOVERNMENT OF IRAQ AND ACCORDINGLY BY REASONS OF DOING SO BY THE ASSESSEE , INCOME ATTRIBUTABLE TO THE EXTENT OF ILLEGAL COMMISSION INCURRED HAS ESCAPED ASSESSMENT WITHIN THE MEANIN G OF SECTION 147 6 ITA NO.4266/MUM/2009 OF THE ACT AND THIS GIVES ME REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT 6. AS IS SEEN FROM THE ABOVE REASONS RECORDED BY THE AO THAT SAME WERE RECORDED ON THE BASIS OF CBDT MEMORANDUM THAT SOME COMPANIES I NCLUDING ASSESSEE WERE INVOLVED IN GIVING KICKBACKS TO IRAQI GOVERNMENT IN THE SUPPLIES MADE BY THESE COMPANIES IN OIL FOR FOO D PROGRAMME. WE NOTE THAT THE AO HA D MECHANICALLY RECORDED THE REASONS ON THE BASIS OF CBDT INFORMATION WITHOUT EVEN VERIFYING THE FACT WHETHER THE ASSESSEE CHARGED SUCH EXPENSES IN THE PROFIT AND LOSS ACCOUNT AS STATED IN THE MEMORANDUM . THE LD AR ARGUED THAT NO ASFF WAS INCURRED AND CHARGED TO THE PROFIT AND LOSS ACCOUNT AND ALSO NO INLAND TRANSPORTATION OF 84100US$ WERE INCURRED AND CHARGED TO THE PROFIT AND LOSS ACCOUNT BUT RS. 14,29,604/ - WERE INCURRED AND CHARGED TO THE PROFIT AND LOSS ACCOUNT AS TRANSPORTATION CHARGES OVERSEAS PAID TO ALIA JORDAN IN JORDAN FOR WHICH PROPER BILLS, VOUCHERS AND BANK ADVICE ARE AVA I L A B L E. WE ARE OF THE CONSIDERED VIEW THAT IN THE LIGHT OF THE FACTS AS STATED ABOVE THE RE - OPENING OF ASSESSMENT CANNOT BE JUSTIFIED BY THE AO BY JUST MECHANICALLY RECORDING THE REASONS WITHOUT ANY APPLICATION OF MIND. WE THEREFORE ANNUL AND QUASH THE RE - ASSESSMENT PRO CEEDINGS AND ALSO THE CONSEQUENT ORDER OF ASSESSMENT PASSED U/S 143(3) / 147 OF THE ACT BY ALLOWING THE APPEAL OF THE ASSESSEE ON TECHNICAL GROUND AND EVEN ON MERIT THE ESCAPEMENT OF INCOME CAN NOT ATTRIBUTED TO THE ASSESSEE AND THEREFORE THE RE - OPENING T HE ASSESSMENT UNDER PROVISO IS ALSO WRONG AND LIABLE TO BE ANNULLED. THE AO IS DIRECTED ACCORDINGLY. 7 ITA NO.4266/MUM/2009 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8TH MARCH, 201 6 SD SD ( . . / C.N. PRASAD ) ( / RAJESH KUMAR ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI ; DATED : 08 . 0 3 .201 6 SRL, SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MU MBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGIST RAR) , / ITAT, MUMBAI