ASST CIT RG 5(3), MUMBAI V. TESLA TECHNOLOGIES & OXIDATION P.LTD, MUMBAI

ITA 4272/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8344 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURALI
• Assessee Lawyers: S C TIWARI; NATASHA MANGAT
• Keywords: Business income; Carry forward of business losses

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER . . , , ./ I.T.A. NO.4272 /MUM/2012 ( ! / ASSESSMENT YEAR : 2007-2008 DY. COMMISSIONER OF INCOME TAX -5(3), ROOM NO. 573, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 20. / VS. M/S TESLA TECHNOLOGIES & OXIDATION PVT. LTD., 1001, CITADEL 18-B, L.D. RUPAREL MARG, MALBAR HILL, MUMBAI 400 011. ! ./ PAN :AABCT 4373 M ( !' / APPELLANT ) .. ( #$!' / RESPONDENT ) ./ I.T.A. NO.3696 /MUM/2012 ( ! / ASSESSMENT YEAR : 2007-2008 M/S TESLA TECHNOLOGIES & OXIDATION PVT. LTD., 1001, CITADEL 18-B, L.D. RUPAREL MARG, MALBAR HILL, MUMBAI 400 011. / VS. ASSTT. COMMISSIONER OF INCOME TAX -5(3), MUMBAI. ! ./ PAN : AABCT 4373 M ( !' / APPELLANT ) .. ( #$!' / RESPONDENT ) ./ I.T.A. NO.4273 MUM/2012 ( ! / ASSESSMENT YEAR : 2008-2009 DY. COMMISSIONER OF INCOME TAX -5(3), ROOM NO. 573, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 20. / VS. M/S TESLA TECHNOLOGIES & OXIDATION PVT. LTD., 1001, CITADEL 18-B, L.D. RUPAREL MARG, MALBAR HILL, MUMBAI 400 011. ! ./ PAN : AABCT 4373 M ( !' / APPELLANT ) .. ( #$!' / RESPONDENT ) 4 APPEALS M/S TESLA TECHNOLOGIES & OXIDATION P. LTD. 2 ./ I.T.A. NO.3697 MUM/2012 ( ! / ASSESSMENT YEAR : 2008-2009 M/S TESLA TECHNOLOGIES & OXIDATION PVT. LTD., 1001, CITADEL 18-B, L.D. RUPAREL MARG, MALBAR HILL, MUMBAI 400 011. / VS. ASSTT. COMMISSIONER OF INCOME TAX -5(3), MUMBAI. ! ./ PAN : AABCT 4373 M ( !' / APPELLANT ) .. ( #$!' / RESPONDENT ) A SSESSEE BY SHRI S.C. TIWARI & MISS NATASHA MANGAT REVENUE BY : SHRI M. MURALI % &' ( )* / DATE OF HEARING : 04-8-2014 +,-. ( )* / DATE OF PRONOUNCEMENT : [ / / O R D E R PER SANJAY GARG, JUDICIAL MEMBER : THESE FOUR APPEALS, TWO FILED BY THE ASSESSEE AND T WO FILED BY THE REVENUE, BEING CROSS APPEALS FOR ASSESSMENT YEARS 2 007-08 AND 2008-09 ARE DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. CIT(A) -9 BOTH DATED 26-03-2012 AND SINCE COMMON ISSUE IS INVOLVED THERE IN, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SI NGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE SHALL TAKE UP THE CROSS APPEALS FILED FOR A.Y. 2007-08 WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) - 9, M UMBAI DATED 26-03-2012. 3. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH ESE APPEALS ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F PROVIDING/SUPPLYING AIR/WATER PURIFICATION SYSTEMS. THE RETURN OF INCOM E FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 19-02-2009 DECLARI NG TOTAL INCOME AT NIL. 4 APPEALS M/S TESLA TECHNOLOGIES & OXIDATION P. LTD. 3 HOWEVER THE RETURN WAS SELECTED FOR SCRUTINY U/S 14 3(3) OF THE INCOME TAX ACT, 1961. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE A.O. NOTICED THAT THE ASSESSEE COMPANY WAS HAVING ITS HEAD OFFIC E IN MUMBAI AND ONE OF THE BRANCH OFFICES AT BENGALURU. THE ACCOUNTS WERE MAINTAINED SEPARATELY. HOWEVER, THE FINAL ACCOUNTS WERE PREPARED ON THE BA SIS OF ACTUAL ACCOUNTS IN RESPECT OF HEAD OFFICE BUT THE ACCOUNTS OF THE BENG ALURU BRANCH WERE PREPARED ON ESTIMATION BASIS. THE A.O. THEREFORE OB SERVED THAT THE ASSESSEE COMPANY HAD FAILED TO FURNISH ITS TRUE AND CORRECT BUSINESS INCOME AND THAT THE CORRECTNESS OR COMPLETENESS OF ACCOUNTS COULD N OT BE ACCEPTED. THE A.O. PROVIDED A COPY OF AIR TO THE ASSESSEE AND ASKED FO R ITS COMMENTS. IN RESPONSE TO THIS, THE ASSESSEE SUBMITTED THAT IT HA D ENTERED INTO PURCHASE TRANSACTION OF AN IMMOVABLE PROPERTY AMOUNTING TO R S.10,10,160/- AND THE ASSESSEE HAD MADE PAYMENTS TO VARIOUS PERSONS AS PE R LEASES TOWARDS CONTRACT AMOUNTING TO RS.71,18,119/-. THE TOTAL TRA NSACTIONS INVOLVED IN THE AIR WAS OF RS. 81,28,279/-. THE ASSESSEE SUBMITTED THAT ITEMS AT SL. NOS. I TO 31, EXCLUDING THE ITEM NOS. 13, 14 AND 25 RELATED T O BENGALURU BRANCH TO WHICH THE ASSESSEE HAD NO ACCESS BECAUSE OF THE DIS PUTES AMONGST THE DIRECTORS AND THE MATTER BEING ON ARBITRATION WITH THE BOMBAY HIGH COURT, THE ACCOUNTS OF THE ASSESSEE COMPANY FOR YEAR 2006- 07 RELEVANT TO AY 2007- 08 WERE CONSIDERED WITHOUT THE BENGALURU BRANCH ACC OUNTS. HE REQUESTED THAT A PROTECTIVE ASSESSMENT CONSIDERING THE LOSS A S NIL MAY BE MADE FOR AY 2007-08. THE ASSESSEE ALSO SUBMITTED THAT PROFIT OF BENGALURU BRANCH BE ESTIMATED CONSIDERING THE GROSS PROFIT RATIO AT 35% AND ADMINISTRATION OF OTHER EXPENSES AT 29%. THE AO AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE ADOPTED RATE AT 40% AGAINST 35% DECLARE D BY THE ASSESSEE AND ALLOWED ADMINISTRATION AND OTHER EXPENSES AT 20% AG AINST THE CLAIM OF 29% MADE BY THE ASSESSEE. HE, THEREFORE, DETERMINED NET PROFIT AT RS. 27,16,334/- AS AGAINST PROFIT ESTIMATED AT RS.4,07,450/-. THE A O ACCORDINGLY HELD THAT BOTH HEAD OFFICES INCOME AND BRANCH INCOME HAVE TO BE ASSESSED TOGETHER AS 4 APPEALS M/S TESLA TECHNOLOGIES & OXIDATION P. LTD. 4 PER THE PROVISIONS OF IT ACT AND ASSESSED TOTAL IN COME AT RS. 66,77,547/- VIDE AN ORDER DATED 7-12-2009 U/S 143 OF THE INCOME TAX ACT, 1961. 4. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE CO NTENTED THAT AS EXPLAINED IN NOTE TO ACCOUNTS FORMING PART OF THE A NNUAL ACCOUNTS OF THE ASSESSEE, THE ACCOUNTS OF BENGALURU BRANCH COULD NO T BE INCORPORATED DUE TO LITIGATION BETWEEN THE DIRECTORS. IT WAS FURTHER CO NTENDED THAT THE RETURN OF INCOME WAS FURNISHED LATE ON 19.02.2009 AS AGAINST THE DUE DATE OF 30.11.2007. SINCE THE RETURN OF INCOME WAS ADMITTED LY FURNISHED LATE, HENCE, NO CARRY FORWARD OF BUSINESS LOSSES WERE CLAIMED AS NOT ALLOWABLE TO THE ASSESSEE. IT WAS FURTHER CONTENDED THAT AS PLEADED IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSMENTS SHOULD BE C ONCLUDED ON PROTECTIVE BASIS CONSIDERING THE TOTAL INCOME AT NIL AND THE E STIMATION OF INCOME OUGHT TO HAVE BEEN MADE ONLY IN RESPECT OF BENGALURU BRAN CH WHOSE ACCOUNTS WERE NOT INCORPORATED. IT WAS ALSO SUBMITTED THAT SUBSEQ UENT TO ASSESSMENT PROCEEDINGS, INTERIM ORDER HAS BEEN PASSED BY THE A RBITRATOR ON 14-3-2012 WHEREIN IT IS REGARDED THAT LIABILITY OF BOMBAY OFF ICE WILL BE THAT OF MANOJ HINDOCHA, DIRECTOR WHEREAS THE LIABILITY OF BENGALU RU OFFICE WILL BE THAT OF KAM OBEROI, ANOTHER DIRECTOR OF THE COMPANY. THE LD . CIT(A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE HELD THAT T HE A.O. WAS QUITE RIGHT IN DETERMINING THE NET PROFIT FOR ASSESSEES BENGALURU BRANCH AT RS. 27,16,334/- AGAINST NET PROFIT ESTIMATED BY THE ASSESSEE FOR IT S BENGALURU BRANCH AT RS. 4,07,450/-. HOWEVER, WITH REGARD TO THE MUMBAI OFFI CE ACCOUNT, THE LD. CIT(A) HELD THAT SIMILAR ESTIMATION COULD NOT BE MADE REJE CTING THE ACCOUNTS OF MUMBAI BRANCH WHICH HAVE BEEN THOROUGHLY PREPARED A ND PROPERLY AUDITED BY THE AUDITOR. MOREOVER, NO FAULT HAS BEEN FOUND B Y THE AO WITH REGARD TO PROFIT AND LOSS ACCOUNT OF MUMBAI BRANCH. THEREFORE , THE ESTIMATION MADE BY THE AO WITH REGARD TO MUMBAI HEAD OFFICE BRANCH WAS NOT BASED ON ANY MATERIAL EVIDENCES. HE HELD THAT THE AO HAD NOT POI NTED OUT ANY MISTAKE IN THE PROFIT AND LOSS ACCOUNT OF MUMBAI BRANCH, AND H ENCE UNDER THE 4 APPEALS M/S TESLA TECHNOLOGIES & OXIDATION P. LTD. 5 CIRCUMSTANCES, THE ESTIMATION MADE FOR MUMBAI BRANC H WAS NOT SUSTAINABLE. AGGRIEVED BY THE ORDERS OF THE LD. CIT(A), BOTH ASS ESSEE AND REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL FOR ASSESSMENT YEARS 200 7-08 AND 2008-09. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT THE ASSESSEE COMPANY WAS HAVING ITS REGISTERED OFFICE IN MUMBAI AND A BRANCH OFFICE IN BENGALURU. THE MUMBAI OFFICE WAS LOOKED AFTER BY IT S DIRECTOR SHRI MANOJ MAGANLAL HINDOCHA WHEREAS THE BENGALURU BRANCH OFFI CE HAD BEEN LOOKED AFTER BY SHRI KARM SHEEL OBEROI. THERE WAS A DISPU TE BETWEEN THE DIRECTORS OF THE ASSESSEE COMPANY AND BECAUSE OF THAT THE ACC OUNTS RELATED TO THE BENGALURU BRANCH OFFICE COULD NOT BE SUBMITTED BEFO RE THE A.O. AT THE TIME OF ASSESSMENT PROCEEDINGS. IT HAS BEEN FURTHER SUBMITT ED THAT IT WAS BEYOND THE CONTROL OF THE DIRECTOR OF THE MUMBAI OFFICE TO SUB MIT THE ACCOUNTS RELATED TO BENGALURU OFFICE. HE HAS FURTHER SUBMITTED THAT TH E DISPUTE TRAVELLED UP TO THE HONBLE HIGH COURT AND THEREAFTER THE HONBLE H IGH COURT HAS APPOINTED THE ARBITRATOR. IT HAS ALSO BEEN BROUGHT TO OUR ATT ENTION THAT VIDE LETTER DATED 6-6-2014, THE ASSESSEE HAS FILED ADDITIONAL EVIDENC E IN THE FORM OF ORDER OF THE HONBLE BOMBAY HIGH COURT IN ARBITRATION NO. 33 OF 2009 ALONG WITH ARBITRATION AWARD DATED 11 TH APRIL, 2013. IT HAS BEEN CONTENDED THAT THE SAME IS A VITAL DOCUMENT FOR DISPOSAL OF THE APPEAL S FILED BY THE ASSESSEE. IT HAS BEEN FURTHER CONTENDED THAT THE ADDITION MADE B Y THE A.O. AND CONFIRMED BY THE LD. CIT(A) IN RESPECT OF BANGALURU OFFICE ON ESTIMATION BASIS WAS WRONG AND LIABLE TO BE DELETED. 6. THE LD. D.R., ON THE OTHER HAND, HAS SUBMITTED T HAT SINCE THE ASSESSEE HAS FAILED TO SUBMIT THE AUDITED ACCOUNTS IN RELATI ON TO BENGALURU BRANCH OFFICE, THE GROSS PROFIT ESTIMATED BY THE A.O. WAS QUITE ACCURATE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PE RUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT T HERE WAS A DISPUTE BETWEEN THE DIRECTORS OF MUMBAI OFFICE AND BENGALURU BRANCH OFFICE WHICH RESULTED IN 4 APPEALS M/S TESLA TECHNOLOGIES & OXIDATION P. LTD. 6 APPOINTMENT OF ARBITRATOR AND THE COPY OF ARBITRATI ON AWARD PLACED ON RECORD. IT IS FURTHER OBSERVED THAT THE INCOME IN RESPECT O F BENGALURU OFFICE HAS BEEN ASSESSED IN THE HANDS OF THE COMPANY ITSELF AND NOT IN THE NAME OF THE DIRECTOR. THE REVENUE IS NOT CONCERNED WITH THE INT ERNAL DISPUTE BETWEEN THE DIRECTORS. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT EFFORTS WERE MADE AND A COMMISSION WAS ISSUED BY THE A.O. U/S 131(1)( D) TO THE ACIT CIRCLE 7(1), BENGALURU TO COLLECT THE DETAILS AND CONDUCT ENQUIRIES IN RESPECT OF INCOME OF ASSESSES BENGALURU BRANCH OFFICE. HOWEVE R, THE PERSONS NAMELY SHRI KARIM SHEEL OBEROI AND MRS. DEVAYANI WERE NOT FOUND IN THAT AREA. UNDER THE TAXATION LAWS, IT IS THE DUTY OF THE ASSE SSEE TO FURNISH CORRECT DETAILS AND ACCOUNTS BEFORE THE A.O. EVEN THE INTER NAL DISPUTE BETWEEN THE DIRECTORS OF THE COMPANY CANNOT BE SAID TO BE A GRO UND FOR NOT FURNISHING THE PROPER DETAILS/ACCOUNTS BY THE ASSESSEE COMPANY BEF ORE THE A.O. IT WAS NOT THE DIRECTORS OF THE ASSESSEE COMPANY WHO WERE INDI VIDUALLY RESPONSIBLE FOR FURNISHING THE ACCOUNTS OF THE RESPECTIVE BRANCHES OF THE COMPANY UNDER THEIR CONTROL BUT THE COMPANY AS A WHOLE WAS RESPON SIBLE TO FURNISH THE CORRECT DETAILS OF INCOME/ACCOUNTS BEFORE THE A.O. IN THE ABSENCE OF FURNISHING OF ACCOUNTS BEFORE THE A.O., THE A.O. WI LL BE JUSTIFIED IN HIS ACTION IN REJECTING THE SAID ACCOUNTS AND MAKING THE ASSES SMENT ON ESTIMATION BASIS. ALTHOUGH THE A.O. HAD ASSESSED THE INCOME ON ESTIMATION BASIS IN RESPECT OF MUMBAI AS WELL AS BENGALURU OFFICE, BUT THE LD. CIT(A) HAS OBSERVED THAT SO FAR AS THE MUMBAI OFFICE WAS CONCERNED, PRO PERLY AUDITED ACCOUNTS WERE SUBMITTED BY THE ASSESSEE, HENCE HE DID NOT SU STAIN THE ESTIMATION OF MUMBAI OFFICE. SINCE NO ACCOUNTS WERE PRODUCED IN R ESPECT OF BENGALURU OFFICE, THE LD. CIT(A) CONFIRMED THE PROFIT/INCOME WORKED OUT BY THE A.O. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT BRING ANYTHI NG BEFORE US AS TO HOW THE ESTIMATION OF INCOME MADE BY THE A.O. IN RESPECT OF BENGALURU OFFICE WAS WRONG. UNDER THESE FACTS AND CIRCUMSTANCES OF THE C ASE, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) I N SUSTAINING THE ADDITION 4 APPEALS M/S TESLA TECHNOLOGIES & OXIDATION P. LTD. 7 MADE BY THE A.O. IN RESPECT OF BENGALURU OFFICE. TH E APPEALS FILED BY THE ASSESSEE IN RESPECT OF BOTH THE YEARS ARE DISMISSED . 8. IN ITS CROSS APPEALS, THE REVENUE HAS AGITATED T HE FINDINGS OF THE LD. CIT(A) THAT NO ESTIMATION IN RESPECT OF MUMBAI OFFI CE COULD BE MADE BY SUBMITTING THAT THE BOOKS OF ACCOUNT OF THE ASSESSE E WERE REJECTED IN ITS ENTIRETY BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. IN THIS REGARD, IT IS OBSERVED THAT THE LD. CIT(A) HAS HELD THAT SINCE THE AUDITED ACCOUNTS IN RESPECT OF MUMBAI OFFICE WERE SUBMITTED BY THE ASSESSEE, HENCE REJECTION OF ACCOUNTS OF MUMBAI OFFICE WITHOUT ANY DEFECTS/REASONS POINTED OUT THEREIN WAS WRONG. MOREOVER, THE REVENUE HAS AL SO NOT POINTED OUT ANY DEFECT IN RESPECT OF ACCOUNTS OF MUMBAI HEAD OFFICE OF THE ASSESSEE COMPANY. IN OUR VIEW, THE LD. CIT(A) HAS RIGHTLY ACCEPTED TH E AUDITED ACCOUNTS IN RESPECT OF MUMBAI HEAD OFFICE OF THE ASSESSEE COMPA NY. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) IN SETTING ASIDE THE ESTIMATION OF INCOME IN RESPECT OF MUMBAI HEAD OFFI CE AND ACCORDINGLY DISMISS THE APPEALS FILED BY THE REVENUE FOR BOTH T HE YEARS. 9. IN THE RESULT, APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22- 08-2014. . / ( +,-. % 0 1 23 22-08-2014 , ( ' SD/- SD/- (N.K. BILLAIYA) (SANJAY GARG ) / ACCOUNTANT MEMBER 04 JUDICIAL MEMBER % ' MUMBAI ; 2 DATED 22-08-2014 [ &.4../ RK , SR. PS 4 APPEALS M/S TESLA TECHNOLOGIES & OXIDATION P. LTD. 8 #$ % &'() *#)!' / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT. 3. % 5) ( ) / THE CIT(A)9 MUMBAI. 4. % 5) / CIT 5 MUMBAI 5. 8&9 #4)4:; , * :;. , % ' / DR, ITAT, MUMBAI E BENCH 6. < =' / GUARD FILE. #$ / BY ORDER, $8) #4) //TRUE COPY// +/, - ( DY./ASSTT. REGISTRAR) , % ' / ITAT, MUMBAI