DCIT 8(3), MUMBAI V. TOWERS WATSON INDIA P.LTD, MUMBAI

ITA 4565/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2300 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 03-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SATHYA MOORTHYDR
• Keywords: Audit objection; Reassessment proceedings
• Section: 143(3); 147

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/4565/MUM/2014, /ASSESSMENT YEARS: 2004-05 DCIT-8(3), ROOM NO.217, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400 020. VS. M/S. TOWERS WATSON INDIA PVT. LTD. (FORMERLY KNOWN AS WATSON WYATT INDIA PVT. LTD.) SOLITAIRE CORPORATE PARK, BUILDING NO.5, 1 ST FLOOR, ANDHERI-KURLA RAOD, ANDHERI (E) MUMBAI-400 093. PAN:AAACG 2955 K ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI N. SATHYA MOORTHY-DR ASSESSEE BY: NONE / DATE OF HEARING: 18.07.2016 / DATE OF PRONOUNCEMENT: 27.07.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 21.4.2004 OF CIT(A)-1 8 MUMBAI, THE ASSESSING OFFICER (A.O.) HAS FILED THE PRESENT APPEAL. 2. ASSESSEE- COMPANY, ENGAGED IN THE BUSINESS OF CONS ULTANCY SERVICES, HAD FILED ITS RETURN OF INCOME ON 20.10.2004 DECLARING A LOSS OF RS.2.09 CR ORES. THE AO COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT, ASSESSING THE LOSS OF THE A SSESSEE AT RS.1.73 CRORES. THE CASE WAS REOPENED INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT. THE REASSESSMENT WAS COMPLETED U/S. 143(3) R.W.S. 147 ON 24.12.2009 COMPUTING THE LOSS OF THE ASSESSEE AT RS.53.31 LAKHS. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD REDUCED A SUM OF RS.1.28 CRORES FROM THE TOTAL INCOME ON ACCOUNT OF NON REALIZATION OF FOREIGN EXCHANGE GAIN. AO HELD THAT THE ASSESSEE HAD ACCOUNTED OF FOREIGN EXCHANGE (FE) GAINS IN THE BOOKS OF ACCOUNT.ACCORDINGLY HE MADE ADDITION OF RS.1,28,86, 816/-.AT THE TIME OF PASSING THE REASSESSMENT ORDER THE AO INITIATED PENALTY PROCEED INGS U/S. 271(1)(C ) FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND CONCEALMENT OF INCOME. IN THE MEANWHILE THE QUANTUM 4565/M/14-TOWERSWATSON 2 PROCEEDINGS WERE PERSUED BY THE ASSESSEE BEFORE TH E FIRST APPELLATE AUTHORITY (FAA). THE FAA UPHELD THE ADDITION MADE BY THE AO. THEREAFTER THE AO ASKED THE ASSESSEE TO SHOW AS TO WHY AN ORDER IMPOSING PENALTY SHOULD NOT BE PASS ED. VIDE ITS LETTER DT. 6.2.2013 THE ASSESSEE CONTENDED THAT THE CASE WAS SELECTED FOR S CRUTINY. WHEN THE ORIGINAL ASSESSMENT WAS BEING PROCESSED THE ASSESSEE HAD FILED FE GAINS OF RS.1.28 CRORES TO THE AO VIDE LETTER DT. 25.9.2006, THAT THE AUDIT DEPARTMENT HAD NOTIFIED T HE AO THAT THE AMOUNT OF FE EXCHANGE HAD ESCAPED ASSESSMENT, THAT AUDIT PARTY HAD ACTED WITH OUT MAKING ANY VERIFICATION, THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THE ISSUE WAS D ELIBERATED UPON BY THE AO. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE AO HELD THAT FE GAIN OF RS.1.28 CRORES HAD BEEN ACCOUNTED IN HIS BOOKS OF ACCOUNT, THAT WHILE COMPUTING THE TOTAL INCOME IT WAS REDUCED AS NOT REALISED, THAT GAIN ON ACCOUNT OF FE FLUCTUA TION IS ACCOUNTED FOR IN THE BOOKS OF ACCOUNT FOLLOWING THE ACCEPTED PRINCIPLES OF ACCOUNTANCY ON ACCRUAL BASIS, THAT SAME WAS TAXABLE AS REVENUE INCOME IN THE HANDS OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION, THAT THE ACT OF THE ASSESSEE WAS NOT BONAFIDE. INVOKING THE PROVIS IONS OF SECTION 271(1)(C) HE LEVIED PENALTY OF RS.46,23,145/-. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SU BMISSION OF THE ASSESSEE AND THE PENALTY ORDER,THE FAA HELD THAT ASSESSEE WAS FOLLOWING A C ONSISTENT METHOD OF ACCOUNTING WITH REGARD TO FE GAIN, THAT IT HAD SUBMITTED ALL THE DE TAILS DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, THAT IT WAS NOT A CASE OF CONCEALMENT OF INCOME.HE REFERRED TO THE CASE OF HAMLET CONSTRUCTIONS (INDIA) PVT. LTD. OF THE MUMB AI TRIBUNAL (ITA /5846/MUM/2011 A.Y. 2004-05) AND HELD THAT THE FACTS OF THE CASE UNDER CONSIDERATION WERE SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF HAMLET CONS TRUCTION (INDIA) , THAT THE TRIBUNAL HAD HELD THAT BRINGING THE NOTIONAL GAINS TO TAX WAS A DEBATABLE ISSUE WHERE TWO VIEWS WERE POSSIBLE, THAT THE AO WAS NOT JUSTIFIED IN LEVYING PENALTY ON DISALLOWANCE MADE/CONFIRMED 4565/M/14-TOWERSWATSON 3 DURING ASSESSMENT/APPELLATE PROCEEDINGS, THAT PENAL TY PROCEEDINGS AND ASSESSMENT PROCEEDINGS WERE DIFFERENT AND INDEPENDENT OF EACH OTHER, THE ASSESSEE WAS FOLLOWING A METHOD OF ACCOUNTING IN EARLIER YEAR AS WELL AS IN SUBSEQUENT YEARS.FINALLY, HE DELETED THE PENALTY LEVIED BY THE AO. 4. DURING THE COURSE OF HEARING BEFORE US THE DR SUPPO RTED THE ORDER OF THE AO AND STATED THAT ASSESSEE HAD NOT OFFERED TAXABLE INCOME FOR THE YE AR UNDER CONSIDERATION, THE AO HAD RIGHTLY LEVIED THE PENALTY U/S. 271(1)(C ) OF THE ACT. NONE APPEARED ON BEHALF OF THE ASSESSEE. 5. WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS WE FIND THAT AO HAD CALLED F OR DETAILS ABOUT THE FE GAIN AND WAS SATISFIED ABOUT THE SUBMISSION MADE BY THE ASSESSEE IN THIS REGARD. IT APPEARS THAT THE AUDIT PARTY RAISED AN OBJECTION IN THAT REGARD AND THE AO INITIATED REASSESSMENT PROCEEDINGS.IN OUR OPINION INVOKING THE PROVISIONS OF SECTION 147 ON T HE BASIS OF AUDIT OBJECTION CANNOT BE VALID RE-OPENING UNTIL AND UNLESS THE AUDIT PARTY INDICAT ES SOME FACTUAL ERROR. THE AO HAD TAKEN TWO DIFFERENT VIEWS ABOUT THE FE GAINS. THAT ITSELF SHOWS THAT THE ISSUE IS A DEBATABLE ISSUE. HERE WE WOULD LIKE TO REFER TO THE CASE OF HAMLET CONSTRUCTION (INDIA) PVT. LTD. (SUPRA), RELIED UPON BY THE FAA. WE ARE REPRODUCING THE RELE VANT PORTION OF THE ORDER AND SAME READS AS UNDER :- BRINGING THE NOTIONAL GAIN TO THE TAX WAS DEBATAB LE ISSUE ON WHICH TWO VIEWS WERE POSSIBLE IN THE LIGHT OF THE DECISIONS CITED BY THE LD. AR AS AFOREMENTIONED. IN OUR VIEW, THE ASSESSEE HAS FOLLOWED ONE POSSIBLE VIEW, WHICH HAS THE SUPPORT OF THE DECISION OF THE UTTARAKHAND HIGH COURT IN THE CASE OF CIT V. ON GC [(2008) 301 ITR 415J, WHEREIN IT HAS BEEN HELD THAT FOREIGN EXCHANGE LOSS CLAIMED BY THE ASSESSEE ON REVENUE ACCOUNT ON ACCRUAL BASIS ON THE LAST DATE OF ACCOUN TING YEAR IS ONLY A CONTINGENT AND NOTIONAL LIABILITY AND DOES NOT CRYSTALLIZE OR ACCR UE IN THE YEAR UNDER CONSIDERATION AND IS NOT ALLOWABLE AS A DEDUCTION. WHEN THE FACT BEIN G SO, WE ARE OF THE VIEW THAT THE ACT OF THE ASSESSEE NOT OFFERING THE IMPUGNED NOTIONAL GAIN TO TAX DOES NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS FOR THE PURPOSE O F SECTION 271(1)(C). IN VIEW OF THAT MATTER, THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN LEVYING/CONFIRMING THE LEVY OF IMPUGNED PENALTY ON THIS COUNT. AS REGARDS THE DISA LLOWANCE OF PRIOR PERIOD EXPENSE OF RS.26, 600/-, IT IS OBSERVED THAT IT WAS A RESULT O F INADVERTENT MISTAKE ON THE PART OF THE ASSESSEE WHICH CANNOT BE TREATED AS CONCEALMENT AS ENVISAGED IN SECTION 271(1)(C) TO 4565/M/14-TOWERSWATSON 4 ATTRACT PENALTY. WE THEREFORE, CANCEL THE PENALTY I MPOSED BY THE AO AND CONFIRMED BY THE LD. CIT(A). RESPECTFULLY FOLLOWING THE ABOVE ORDER, WE HOLD THA T THE ORDER OF FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY . THEREFORE UPHOLDING HIS ORDER , WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO.APPEAL FILED BY THE AO STANDS DISMIS SED. AS A RESULT,APPE AL FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY,2016. 27 , 2016 SD/- SD/- ( . . !' / C.N. PRASAD ) ( #$ / RAJENDRA ) '% / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 27.07.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / &' 2. RESPONDENT / !(&' 3. THE CONCERNED CIT(A)/ ')* +,- , 4. THE CONCERNED CIT / ')* +,- 5. DR E BENCH, ITAT, MUMBAI / ! , , . . . 6. GUARD FILE/ . '( ! //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.